Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) (Amendment) Regulations 2025

Considered in Grand Committee

17:44:00

Moved by

That the Grand Committee do consider the Subsidy Control (Subsidies and Schemes of Interest or Particular Interest) (Amendment) Regulations 2025. Relevant document: 28th Report from the Secondary Legislation Scrutiny Committee

My Lords, I beg to move these regulations, which were laid before the House on 2 June 2025. The Subsidy Control Act came into force in January 2023. This legislation was designed to balance the need for streamlined processes to ensure that public authorities can quickly and effectively give subsidies to support businesses where it matters with the need to ensure that subsidies are proportionate, represent good value for the taxpayer and do not unduly impact on competition and investment. The Subsidy Control Act also ensures that our international obligations on subsidy control are reflected in our domestic legislation. When this Government were appointed last year, we were keen to test whether the legislation had achieved the correct balance or whether any changes should be made to improve the functioning of the UK’s subsidy control regime. Following discussions with officials, feedback from affected public authorities and a public consultation, we have decided to amend these regulations. These regulations set out which subsidies must face mandatory referral for scrutiny by the Competition and Markets Authority’s Subsidy Advice Unit, and which may be voluntarily referred. The CMA review process is designed to capture the largest subsidies, which have the greatest risk of distorting competition or investment. Once the CMA has accepted a referral, it must publish a non-binding report on the subsidy’s assessment of compliance with the Subsidy Control Act within 30 working days. Using feedback from the CMA’s report, the public authority awarding the subsidy should improve the design of its subsidy or its assessment of compliance, thus reducing potential harm caused by the subsidy and improving its design. As the CMA’s reports are published, this referral process also improves the transparency of subsidy giving, offering competitors the opportunity to better understand when their rivals are receiving subsidies and where they may wish to challenge an unfair subsidy. This SI updates the existing regulations, changing the definition of a subsidy or scheme of particular interest, or SSoPI. An SSoPI requires mandatory referral to the CMA for scrutiny. The effect of the amendment on the definition of an SSoPI is to increase the threshold at which a subsidy must face mandatory scrutiny. Currently, this is set at £10 million for non-sensitive sectors, with the amendment moving it to £25 million. This is in response to stakeholder feedback that the £10 million threshold was too low and capturing subsidies that posed only a low risk of distortion. This includes subsidies for leisure centres and well-being hubs, which pose a comparatively low risk of harming competition or investment in the UK, or trade and investment internationally. The new £25 million threshold represents a proportionate approach that will allow the CMA to focus its resources on the effective scrutiny of the largest subsidies that pose the greatest risk to the UK’s internal market and to international trade. Although we are adjusting the mandatory referral threshold, the voluntary referral threshold—currently set at £5 million—will remain the same. This will allow public authorities the opportunity to voluntarily refer subsidies that would previously have faced mandatory referral where they consider they would benefit from this additional scrutiny. The rules around cumulating related subsidies will also remain the same, ensuring that the cumulative distortive effect of subsidies to a particular enterprise is still captured and scrutinised. We will also retain the existing list of “sensitive sectors” and the lower £5 million threshold at which subsidies in these sectors face mandatory CMA referral. There is a strong rationale for effective scrutiny of these subsidies to mitigate the risk of trade distortion and international challenge. Scrutiny by the CMA does not prevent the awarding of these subsidies but will give public authorities the chance to strengthen their assessment of compliance, as well as their subsidy, and mitigate any risks. These sectors were previously deemed to pose a higher risk of international challenge, and at present there is little evidence to support amending this list. Indeed, on balance, the evidence provided in response to our recent consultation did not point towards amending the list. As I hope is clear from my remarks, the intention of these regulations is to update the thresholds for CMA scrutiny in a measured and proportionate way, reducing administration while retaining effective scrutiny where it matters most. I invite the Committee to support the passage of this instrument and I commend it to the Committee.

My Lords, I thank the Minister for introducing these regulations. It was in January 2023, under the previous Conservative Government, that the UK subsidy control regime was established by the Department for Business and Trade. The aim of the regime is to give public authorities, including local government and devolved government, the flexibility to award subsidies tailored to local priorities while minimising distortion to competition and, of course, driving economic growth. Designed post-Brexit, the regime was created to be less onerous and more flexible while still retaining protections for UK competition and investment. As the Minister explained, under the regime, two categories of subsidy in non-sensitive sectors were identified as more likely to lead to distortive effects on competition: first, subsidies or schemes of interest with a current threshold between £5 million and £10 million; and, secondly, subsidies or schemes of particular interest with a current threshold of over £10 million, or over £1 million but cumulating to over £10 million with other related subsidies over the previous three financial years. This statutory instrument proposes changes to increase the threshold for determining a subsidy or subsidy scheme in non-sensitive sectors as being of particular interest from £10 million to £25 million. I welcome these proposals, which will reduce the administrative burden on public authorities awarding smaller, lower-risk subsidies and will allow the CMA to focus on effective scrutiny of the largest subsidies, which pose the highest risk to the UK’s internal market and international trade. As the Minister pointed out, today’s proposals are supported by the Department for Business and Trade, which has cited the threshold increase as a necessary step, and I agree. As it stands, the current threshold has resulted in subsidies with, as the Minister quoted, a “comparatively low risk” of distorting competition and investment, such as sports and leisure centres, well-being hubs and brownfield land regeneration, being unnecessarily referred to the CMA and therefore undergoing a disproportionate amount of scrutiny. It is essential that we learn from these reports and improve the regime to support competition and economic output across the country. Reports from the Department for Business and Trade show that, from 2023 to 2024, the CMA received 68 referrals above the current £10 million threshold. If the threshold had been £25 million, there would have been 49 referrals—a reduction of 28%. I believe that this is proof that today’s proposals will improve the efficiency of the subsidy regime, maintain competitiveness and better support our public authorities across the country in driving local economic growth. That is why we on these Benches support these draft regulations. Raising the threshold for subsidies and schemes of particular interest is a proportionate and pragmatic adjustment to the UK’s subsidy control regime. It strikes the right balance between ensuring effective oversight of high-risk subsidies and reducing unnecessary administrative burdens on smaller, lower-risk projects.

My Lords, I thank the noble Lord, Lord Hunt of Wirral, for his contribution and for his support for the regulations. He is absolutely right that changing the main threshold to £25 million while maintaining the existing thresholds ensured a proportionate approach to scrutinising these subsidies. He is also right that, in 2023-24, there were 68 SSoPI referrals. Had the threshold been increased to £25 million, 19 subsidies would not have been referred to the CMA, meaning a saving of some 20%. That saved time and allowed the CMA to look at the other referrals. The CMA referral process was designed to foster good policy-making by public authorities across the UK and ensure an appropriate level of scrutiny for subsidies that are most likely to cause harm to competition—as mentioned by the noble Lord—trade or investment. These regulations will reverse the threshold for mandatory CMA scrutiny in a balanced and proportionate manner, reducing the administrative process while preserving robust oversight where it is most needed.

Motion agreed.

Committee adjourned at 5.56 pm.