Subsidy control's impact on land dealings
First published in 'The ACES Terrier': January 1 2022 marked the first anniversary of subsidy control replacing state aid in Great Britain.
The Subsidy Control bill is due to become law this year and will underpin the relatively new system in UK law. Subsidy control, much like state aid, applies to land dealings where the public sector acquires or disposes of a land interest. The two systems are similar though not identical.
Subsidy control seeks to ensure that the state does not use public resources to give an advantage to a business or enterprise (this can include not-for-profits engaged in market activities). The public sector paying more than the market value for a land interest or receiving less than a market value when disposing of a land interest/charging rent would both be unlawful unless there is an exemption/justification.
Unlike state aid the subsidy exemptions/justifications are based on compliance with subsidy control principles rather than a set of written 'block exemptions' which previously permitted state aid to be given in certain defined circumstances.
The public sector must now assess which policy objectives are being furthered by a subsidy measure and confirm the measure is efficient in achieving the desired outcome. The public sector must also be satisfied that the measure is not prohibited under World Trade Organisations rules nor any UK trade agreements. The UK government has stated that it prefers the new principle-based system as this gives the public sector greater flexibility (compared to block exemptions) to respond to market failure or to deliver national/local priorities. No doubt this is true, though smaller public sector organisations may lack the knowledge/expertise to be confident about undertaking the related assessments.
English law regulates the disposal of local authority land primarily through section 123 of the Local Government Act 1972 and sections 32 and 34 of the Housing Act (for 'housing land'). Section 123 incorporates the concept that a council should dispose of most land interests for the best consideration that can reasonably be obtained and though this may equate to a market value, in subsidy control terms, it does not automatically do so. For instance, it won't equate to a market value if the authority is relying on a general consent under Circular 06/03 and/or the value of a voluntary contribution has been taken into account. Short term arrangements are also excluded from the best consideration requirement as is the acquisition of property interests.
Where a land transaction, would under subsidy control, mean that a local authority is deemed to have given a subsidy to an economic actor then it will be necessary for that authority to undertake the subsidy control principles assessment, even if the transaction would be permitted under sections 123 or 32 (or their related consents).
The pending Subsidy Control legislation will place a legal duty on public authorities to respond to pre-action information requests about subsidy awards within 28 days of a request being made. Further, authorities will be incentivised to promptly publish awards on the UK subsidy control database as this then time limits (in most cases) a legal challenge being made about that subsidy to within a month of publication. Though this will benefit public bodies (compared to the much longer challenge period of state aid) it is likely to result in a wave of pre-action information requests being made about public sector property transactions. Having the subsidy control assessments recorded and the information to hand will assist councils deal with these property-based requests.
Subsidy control does not apply to non-economic activity - i.e. a reduced rent for letting out a community hall to a voluntary group is unlikely to be subsidy. When enacted the bill will also confirm that economic organisations may receive as de minimis / minimal financial amounts (MFA) of up to £315,000 of subsidy over a continuous three year period (from all sources) which rises to £725,000 for organisations delivering services such as social housing or social care. MFA involves light touch paper work. The amounts are the total MFA from all public sources.
View the original 'The ACES Terrier' article here.