Introductions Flashcards
What is a subsidy (basic)
A subsidy is where a public authority provides support to an enterprise that gives them an economic advantage, meaning equivalent support could not have been obtained on commercial terms.
This could include, for example, a cash payment, a loan with interest below the market rate or the free use of equipment or office space.
Four limb test
- Is the financial assistance given, directly or indirectly, from public resources by a public authority?
‘Public authority’ includes any entity which exercises functions of a public nature. This includes public authorities at any level of central, devolved, regional or local government and non-governmental bodies that are performing a public function.
‘Public resources’ include public funds that are administered by the UK government, the devolved governments, or local authorities, whether they are given directly, through public bodies (such as agencies), or through private bodies.
- Does the financial assistance confer an economic advantage on one or more enterprises?
The recipient must be an ‘enterprise’: any entity engaged in an economic activity, which means offering goods and services on a market.
The financial assistance must confer an economic advantage, meaning that it is provided on favourable terms. Financial assistance will not confer an economic advantage if it could reasonably be considered to have been obtained on the same terms on the market.
- Is the financial assistance specific? That is, has the economic advantage been provided to one (or more than one) enterprise, but not to others?
This covers financial assistance that is provided to specific beneficiaries determined on a discretionary basis by the government, as well as assistance that benefits (directly or indirectly) only enterprises in a particular sector, industry or area, or with certain characteristics.
- Will the financial assistance have, or is it capable of having, an effect on competition or investment within the UK, or trade or investment between the UK and another country or territory?
To constitute a subsidy, the assistance must have a genuine effect that is more than incidental or hypothetical on competition or investment in the UK, or on international trade or investment.
Why should subsidies be given
Subsidies should be given in the public interest, to address a market failure or equity concern.
For example, a subsidy could incentivise businesses to do research and development that increases economic productivity and wider prosperity, to increase the use of low-carbon technology, or to extend access to cultural or educational amenities.
What happens if no Subsidy Control
However, without proper controls, subsidies can cause economic harm or distortive effects. Subsidies can give recipients an unfair advantage over their competitors or be an inefficient use of public money if they do not bring about net positive change.
How to give an MFA subsidy
Before awarding the subsidy, provide the intended recipient enterprise with an ‘MFA notification’. An MFA notification is a written statement that includes all of the following:
an explanation that the public authority is proposing to give the enterprise a subsidy by way of MFA
specifies the gross value amount of the assistance
a request for written confirmation from the enterprise that the MFA threshold specified in section 36(1) of the Act will not be exceeded by the enterprise receiving the proposed assistance
When awarding the subsidy, provide the intended recipient enterprise with an ‘MFA confirmation’. An MFA confirmation is a written statement confirming:
that the subsidy is given as MFA
the date on which it is given
the gross value amount of the assistance.
The enterprise must keep a record of this information for at least three years beginning on the date on which the subsidy was given.
You can only award the subsidy when you have received confirmation from the recipient enterprise that the MFA threshold will not be exceeded by the enterprise receiving the proposed assistance.
Services of public economic interest assistance
A similar exemption to MFA is available for subsidies for services of public economic interest, known as ‘services of public economic interest assistance’ (SPEIA).
These subsidies can be given up to the higher threshold of £725,000 without having to comply with the majority of the subsidy control requirements. Further information about SPEIA can be found in chapter 7 (‘minimal and SPEI financial assistance’) of the statutory guidance.
Is your subsidy or scheme an SSoPI?
Subsidies of particular interest are subsidies that meet any of the following criteria:
subsidies granted outside of sensitive sectors [footnote 21] if they are over £10 million, or if they are over £1 million and would cumulate above £10 million together with other related subsidies given within the previous 3 financial years
subsidies granted in sensitive sectors if they are over £5 million, or if they are over £1 million and would cumulate above £5 million together with other related subsidies given within the previous 3 financial years
restructuring subsidies
subsidies that are explicitly conditional on relocation and meet the conditions set out for an exemption from the general prohibition in section 18 of the Act, that have a value exceeding £1 million
Is your subsidy or scheme an SSoI?
Subsidies of interest are subsidies that meet any of the following criteria:
subsidies that do not meet the criteria for a subsidy of particular interest and that are between £5 million and £10 million, or that cumulate to such a value together with other subsidies given within the previous three financial years [footnote 22]
rescue subsidies
tax subsidies
subsidies that are explicitly conditional on relocation and meet the conditions set out for an exemption from the general prohibition in section 18 of the Act, and that have a value of £1 million or below
