How are the strings attached? Navigating grants and the new public subsidy regime…

Rightly, there are many conditions for how grants will be used – and you can expect ‘grant clawback events’ to be listed in the small print, for example, being used for improper purposes or where the project fails to be progressed diligently. Reviewing these provisions carefully to avoid unnecessary delivery risks is a good start.

Subsidy controls project

But most grant conditions also make it the recipient’s problem to ensure that the recipient is not receiving an unlawful subsidy. The subsidy regime is largely about ensuring the grant does not create unfair competitive advantages for those given grant. The new Subsidy Control Act 2022 came into force earlier this month, largely making things simpler than the previous regime but catching more subsidy measures as the ‘local’ exemption is considered to have been narrowed. Anyone who has experience of dealing with EU structural funding such as ERDF can breathe a sigh of relief that finding relevant parts of the block exemption and discovering that your permitted intervention rate is insufficient are now long gone! So, what does the regime require? In a nutshell, for more straightforward grants, compliance can be achieved by showing that you are receiving or giving ‘good grant’ – helping achieve public policy objectives, often by correcting market failure. The grant must not be over generous, or cover costs that were already funded or contribute to programmes that would have happened anyway. An analysis must be conducted supporting the approach to scheme design and delivery to ensure that there is no other way which involves no subsidy, or reduced subsidy, which could achieve the same objectives. In addition, that analysis must conclude that the benefits of the subsidy outweigh the potential downsides – so being aware of and managing potential disadvantages or risks of the subsidy is an absolute requirement.

Avoid the distortion in design…

These principles show how important it is to engineer out as many potential downsides when designing the grant scheme or project delivery early on. For example, it might cause unfairness for businesses if those who happen to heat their premises with gas receive new and free electric heat pumps, but those who have already paid to make the switch get nothing. Designing your grant regime so that applicants can apply for the extra costs of installing heat pumps over gas boilers is much less likely to cause distortion.

Avoid the distortion in delivery…

Competition is usually an elixir for the ills which can be caused by subsidy. Designing your process so that competition is present as rapidly as possible in your project plan is key to reducing the risk of subsidy in your supply chain. As an example, if you receive grant to help with decarbonisation, then ensuring the designers and contractors who will progress the scheme are subject to a formal procurement process with proper award criteria will ensure that the supply chain is not obtaining any selective advantage which means no subsidy will be granted to your delivery partners. Sounds simple? In our experience, particularly with housing and local authorities, the timeframes for spending grant are so tight that running anything through procurement is particularly challenging. Understanding how you can progress procurement in a hurry usually involves pre-procured frameworks – but often insufficient due diligence about their suitability and call-off mechanisms undermines the intent here. Planning ahead around routes to delivery is key and makes all the difference.

So, what?

The new regime will not forgive a failure to plan design and delivery of grant schemes. There is more flexibility, but as they say, with flexibility comes responsibility to show that any subsidy intervention strictly achieves just its objectives.

For more information on navigating grant and the new public subsidy regime, please contact Richard Brooks.