In the first part of this post, I set out the structure of the Subsidy Control Bill. This post looks at how it applies to legislation and at some questions and concerns about enforcement and judicial review.
Application to legislation
It is entirely possible for a subsidy to be granted by legislation: legislation may provide, for example, for payments to be made or for more favourable tax treatment of favoured sectors.
The application of the Bill to secondary legislation is straightforward: the person making the statutory instrument will be a public authority and, to the extent that the legislation confers a subsidy, it can be reviewed and challenged in the same way as any other subsidy decision.
However, neither Parliament nor the devolved legislatures are “public authorities” covered by the main part of the Bill: clause 6(1). So subsidies conferred by primary legislation are not covered by the main part of the Bill. However, they are covered by Schedule 3 to the Bill, which contains a number of constitutionally interesting provisions.
In relation to the devolved legislatures, the requirement to be satisfied that the subsidy complies with the subsidy control principles, the prohibition on certain types of subsidy, the transparency obligations, the possibility of judicial review, the possibility of voluntary referral to the CMA, and the possibility of recovery orders, all apply to devolved primary legislation. One difficulty is that, in many cases (eg on the application of the subsidy control principles) the Bill requires the authority to be satisfied as to various matters – a requirement that is not easy to apply a legislative body. So the Bill applies that requirement (along with various other requirements, such as the clause 76 requirement to provide information) to the “promoter” of the legislation (either the relevant minister or the person in charge of the Bill). This identification of a “promoter” is unusual if not unprecedented: and it is not obvious that it is right to assume that the views of the promoter are necessarily the views of the legislature as a whole. However, it is hard to see what else could have been done, given that the TCA requires the application of the subsidy control rules to all but Acts of the UK Parliament (Article 372(4)).
As for judicial review, in the case of devolved primary legislation, that has to be brought before the High Court or Court of Session rather than the CAT, presumably because it was felt that the political sensitivities required the involvement of the most senior courts.
The UK Parliament is, unsurprisingly given the doctrine of Parliamentary supremacy and the specific exclusion of Acts of the UK Parliament from the possibility of judicial review in Article 372(4) of the TCA, treated somewhat differently. The only parts of the Bill that apply to UK primary legislation are the requirements of transparency and the possibility of voluntary referral to the CMA (referral being made by the promoter of the legislation): neither transparency nor the existence of a CMA report having any effect on the validity of the legislation at issue.
There are a number of uncertainties as to how judicial review will operate under the new regime.
- How will “interested party” be interpreted? If it is interpreted narrowly, then there is a serious risk that in many cases there will be no-one able and willing to challenge an unlawful decision. There may be no real competitors; or all competitors may benefit from the decision or hope to benefit from future decisions. Or the economic distortion and cost of an inappropriate subsidy may be so widely spread that it is in no-one’s commercial interest to incur the costs and risk of litigation. Those factors all point to a serious risk of non-enforcement: a risk aggravated by restrictive rules as to standing.
- While it is very likely – on standard “alternative remedy” principles – that the High Court or Court of Session will reject an attempt by someone with standing as an “interested party” to bring judicial review proceedings in those courts that it could have brought in the CAT under clause 70, it is uncertain whether that would apply where the claimant or pursuer has standing in those courts but would not, because of the restrictive definition of “interested party”, have standing in the CAT. There is nothing in the Bill that expressly ousts the jurisdiction of the High Court or Court of Session in subsidy control cases: and given the courts’ dislike of implied ousters, it is at least well arguable that such a litigant would find that the doors of the High Court or Court of Session were open to them. That, though, has the paradoxical consequence that such litigants can benefit from generally more generous timing rules than the very tight rules imposed under the Bill, while those with a real and obvious economic interest in challenging the subsidy do not, as well as leading to the High Court or Court of Session considering issues that in general Parliament thought should go to the CAT.
- What is the position where a public authority incorrectly takes the view that a measure is not a subsidy, and so does not put it on the database or consider the subsidy control principles? (As explained above, there are many areas where the question of whether a measure is a subsidy is open to both factual and legal argument.) The Bill fails in various respects to consider that possibility: for example, clauses 55 and 60 give the power to the Secretary of State to refer subsidies to the CMA, but do not expressly cover measures that he considers may be a subsidy; and clause 76 does not appear to cover the case where a potential applicant is trying to establish whether the measure complained of was in fact a subsidy and wants to find out, for example, what the terms of the loan at issue actually were and how they compared with market terms. In the cases of clauses 55 and 60, the Secretary of State would presumably have to have enough evidence on which to base a reasonable conclusion that there was a subsidy before exercising the power – and if the public authority concerned considered that there was not, the CMA would have to reach a view on that question (a view that would be subject to judicial review in the High Court or Court of Session, as it would not be a “subsidy decision” subject to review by the CAT). It would be better if clauses 55 and 60 – and clause 76 – expressly covered the case where the Secretary of State (or potential applicant) believed that a subsidy may be proposed (or may have been given). There is also an oddity in that the time limit for applying to the CAT runs (in essence) from the date on which the subsidy was placed on the database: but if that is never done, that would suggest that an applicant can apply at any time for judicial review of what it claims was a subsidy decision (the first question for the CAT then being whether the applicant is right to make that claim).
- How will the CAT exercise its judicial review jurisdiction? It is generally agreed that the CAT has exercised a “light touch” in scrutinising regulatory decisions under its judicial review jurisdiction, giving the CMA a wide discretion in formulating its regulatory policy. However, it is one thing to allow a wide discretion to an independent regulator, but quite another to do so to a granting authority “marking its own homework” and often subject to considerable internal pressure to adjust its reasoning and approach to produce the result desired by its political masters. Given the well-known flexibility of judicial review, it is at least arguable that a more exacting level of scrutiny should be applied to such decisions.
- How will the CAT’s analysis be affected by a favourable or unfavourable report by the CMA? This is really a particular example of the previous question: but – while it must be open to a granting authority to depart from the unfavourable advice of the CMA – it must also be at least arguable that it should have particularly solid and cogent grounds for doing so. Contrariwise, it is likely to be correspondingly harder to persuade the CAT that an approach endorsed by the CMA is unreasonable.
- How does the judicial review jurisdiction apply to a subsidy granted under a subsidy scheme? A subsidy scheme is itself a “subsidy decision” subject to challenge before the CAT. But at that stage it may be impossible for potentially affected third parties to work out whether, and to what extent, their interests are affected by the scheme (and even whether they fall within the class of “interested party” entitled to challenge the scheme). What then happens if subsidy is granted under the scheme that does seriously affect their commercial interests? Is their challenge limited to the question of whether the subsidy is covered by the scheme, or can they challenge the scheme itself even though the time limit for challenging the scheme has long since expired? It is submitted that – under the principles set out in, for example, Boddington v BTP UKHL 13, the applicant must be able in those circumstances to base a challenge to the subsidy on the claim that the scheme under which it is made is itself unlawful and hence void: but the position is not entirely clear.
As observed above, the lack of any public body with enforcement powers puts the onus of enforcement on private actors – and an apparently limited class of such actors at that. And, for reasons explained above, there are all sorts of reasons why private actors may not want to act as enforcers. In the case of subsidies falling within the class of “subsidies of particular interest” – to be defined by secondary legislation – the fact that the authority must refer the subsidy to the CMA will act as a significant safeguard, especially as differing from the CMA will be both a very public and a quite risky decision for the granting authority.
In relation to other subsidies, the system relies on the public authority applying the subsidy control principles in a rigorous and diligent way, supplemented by the possibility in some cases of a voluntary referral to the CMA and in others by the possibility of a clause 55 or clause 60 referral of the subsidy to the CMA by the Secretary of State.
The problem, however, as already observed, is that public authorities will often be under considerable pressure to indulge in what is sometimes called “policy-based evidence-making”: in this context, to bend or skimp on their consideration of the subsidy control principles in order to fit a political imperative. Where the authority is part of central government (or even the Secretary of State himself) it is hard to be confident that the Secretary of State will be keen to use his clause 55 or 60 powers or to seek judicial review of a suspect decision. One way of ameliorating those concerns would be to widen the class of persons entitled to refer subsidies to the CMA under clauses 55 and 60 (to include devolved governments and perhaps local authorities or even a body such as the National Audit Office) and the class of automatically “interested parties” so as to include those bodies and any other person who would have standing under ordinary public law principles.
As noted in Part 1 of this blog, the time limit – which generally runs from the placing of the subsidy on the transparency database – is very tight. That concern is all the greater because, as Alexander Rose has noted, the database is not, in its current form, easily searchable and it is often not clear when subsidies were placed on it.
Another area of concern is that public authorities who consider that they have some plausible grounds for saying that the measure is not a subsidy may well decide not to complicate matters by treating it as one, and many of those cases will stay below anyone’s radar. In some cases, that risk will in practice be tempered by the concern of beneficiaries of the measure that an undeclared subsidy may be challenged, quashed, and a recovery order imposed: but if there is perceived to be little risk of discovery and challenge, then that concern may not be very significant.
As argued above, there is some scope for clarifying the way in which the Bill applies to such cases: but there is also an argument for giving either the CMA or some other body (the National Audit Office?) the power to investigate and report on concerns that subsidies may not have been declared, not least because the United Kingdom is obliged by Articles 366 and 369 of the TCA to ensure that subsidies granted do comply with the subsidy control principles and are placed on a public register. Moreover, the issue of undeclared subsidies overlaps with widespread public concern in recent years about unduly favourable tax treatment of large multinational companies, and with concerns about over-generous treatment of favoured companies in public spending and contracting decisions, all of which raise subsidy issues. Those who share those public concerns would therefore be well advised to pay attention to this aspect of the new regime.
Finally, the Bill has considerable implications for the UK’s territorial constitution, especially when read with section 50 of the UK Internal Market Act 2020, which gives the UK government a very wide power to spend money in Scotland, Wales and Northern Ireland on matters within devolved competence, and section 52 of that Act, which made subsidy control a reserved (or, in Northern Ireland, excepted) matter outside devolved competence. The Secretary of State’s extensive regulation-making powers, and his power to make “streamlined subsidy schemes” without any review by the CMA, are all exercised without any requirement to consult, let alone obtain the agreement of, the devolved administrations, even though those powers may have considerable impact on their powers and policies. Given that the Secretary of State is part of the UK government which in many areas of government activity acts only for England, there is some concern that those powers will be exercised with more of an eye on England than on the other nations of the UK. Further, as noted in Part 1 of this blog, the Secretary of State has powers to intervene in decisions of the devolved administrations (by referring subsidies to the CMA and challenging decisions before the CAT): but those powers do not apply vice versa in relation to subsidy decisions taken by the UK government that may substantially affect Scotland, Wales and Northern Ireland.
The Subsidy Control Bill creates a new public law regime covering a large class of public decisions and significantly affecting all public authorities, including the devolved legislatures. The regime is unprecedented: it is very different from the EU State aid regime, but has no parallel in the world outside the EU. Public law practitioners will all need to familiarise themselves with it. There are also significant concerns about its operation which will, it is to be hoped, be addressed as it goes through Parliament.
George Peretz QC is a barrister practising in public law at Monckton Chambers.
(Suggested citation: G. Peretz, ‘The Subsidy Control Bill: Part II – Application to legislation, questions and concerns’, U.K. Const. L. Blog (29 October 2021) (available at https://ukconstitutionallaw.org/))