Response to CMA consultation on operation of the Subsidy Advice Unit

Response to CMA consultation on operation of the Subsidy Advice Unit

Frontier Economics is pleased to be able to respond to the CMA’s consultation on the manner in which the Subsidy Advice Unit (‘SAU’) will operate.

The SAU is an important part of the operation of the UK’s new subsidy control regime following Brexit. As envisaged, the Subsidy Control Act (‘SCA’) will lead to a more economic approach to reviewing subsidies, with a greater focus on the effects of subsidies compared to the historic form-based approach which has been adopted under the EU’s state aid regime. This is a welcome change, which has the potential to benefit the UK economy by using subsidies in a more effective way than has historically been the case.

This response sets out Frontier’s views on the various issues raised in the CMA’s consultation. We have not confined ourselves to the specific questions raised by the CMA, but have commented on the document as a whole. Annex 1 sets out the specific paragraphs of the response which directly answer the CMA’s questions.

At a high level, Frontier considers that the approach to the operation of the SAU as set out in the CMA’s consultation is broadly appropriate. The role of the SAU is an advisory one, and should be focussed on whether subsidy is being provided in an appropriate way, rather than on any assessment of the policy goals of the public authority. In our view, the consultation rightly sets out that this is the approach which the SAU plans to adopt.

An issue which the SAU should be aware of is potential gaming of the system by public authorities. This could occur in two ways. First, there could be attempts by public authorities to claim that a Subsidy or Scheme of Particular Interest (‘SSoPI’) is really a Subsidy or Scheme of Interest (‘SSoI’) in order to benefit from the looser review requirements around SSoIs. Second, given the short period provided to the SAU for review of subsidies, there could be gaming around pre-referral engagement by authorities in order to limit the SAU’s ability to effectively review a subsidy or scheme. The SAU should be (and no doubt is) aware of both issues, and should take steps to ensure that the appropriate review is undertaken regardless.

We also consider that transparency in the SAU’s actions will be particularly important, for two reasons.

  • First, under a new regime there is likely to be a period during which public authorities and external advisors are learning about the operation of the regime, in order to be able to determine what types and levels of subsidy are permissible. While some of this will come from Competition Appeal Tribunal (“CAT”) judgments following litigation against subsidies, the SAU’s reports will be an important element of building this knowledge base.
  • Second, transparency will enable third parties to comment on subsidy at the SAU advice stage, improving the quality of SAU advice.

The detail of the SAU’s assessment appears likely to focus primarily on the effects of the subsidy, rather than the form-based approach which has generally been adopted under the EU state aid regime. This is welcome, but means that there is little relevant precedent. As a result, new assessment techniques are likely to have to be adopted, particularly when trading off the costs and benefits of a particular subsidy. We suggest that the SAU should take a flexible view, and amend the approach which it adopts to assessment as thinking both within the SAU, and in the wider competition community, develops.

Read Frontier’s response in full by clicking the link below. For more information, please contact or call +44 (0) 20 7031 7000.

Response to CMA consultation on operation of the Subsidy Advice Unit