Managing Subsidy control risk in the HE sector

In our October Subsidy control update for the HE sector, we discussed future Competition Appeal Tribunal (CAT) subsidy challenges, new streamlined routes for arts and culture and the Competition and Markets Authority (CMA) review of the effectiveness and impact of the Subsidy Control Act 2022 (SCA 2022).

We provide an update on these topics and highlight the subsidy control implications for universities and research organisations and managing risk.

By way of reminder, while universities often fall outside the scope of the subsidy control rules for core research and development activities, subsidy control may still apply where, for example:

The university is a beneficiary of grant funding or is flowing down a subsidy to other beneficiaries
The university is carrying on activities through a commercial subsidiary
Projects or activities are revenue generating, or involve the allocation and commercialisation of intellectual property rights.

Therefore subsidy control is a compliance issue for universities and research organisations. Breach may give rise to clawback of subsidies under grant funding and related agreements, difficulties in applying for future funding, funding delays or involvement in third party challenge proceedings and reputational damage.

What's new

The last six months have seen high levels of activity in the CAT and the Subsidy Advice Unit (SAU).

Competition challenges in the CAT

We previously reported on the commercial operator test in Mr Aubrey Weis v Greater Manchester Combined Authority which conferred a wide discretion on the public authority in determining that the financial assistance from loans in relation to a property development transaction was on market terms i.e. would a commercial market operator have lent money on similar terms.

This case has subsequently been followed in The New Lottery Company Ltd and Others v Gambling Commission in February 2026.

The CAT held the payment by the Gambling Commission of £70.21m towards marketing costs for the lottery operator was not a subsidy because the decision was consistent with normal market conditions under the commercial market operator (CMO) principle, so no “economic advantage” arose.

The CAT found evidence of econometric modelling and discussion about the likely outcomes of the investment, consistent with what he would have expected to see in relation to a commercial investment. The decision also confirmed that the standard of proof for a complainant arguing that a transaction is not on market terms, is to demonstrate that the relevant transaction would not have been entered into, on the same terms the public authority in fact entered into it, by any rational market operator. The test is applied by reference to the information available at the time the decision was made.

Managing risk: Where universities rely on the CMO principle (for example, hiring commercial facilities or dealing with subsidiaries on an arm’s length basis), maintain an audit trail of third party comparators and the commercial rationale. Social and environmental considerations which may benefit a university should be disregarded for CMO purposes, as a market operator is unlikely to price these in.

The CAT decision in 1740/12/13/25 - Bristol Airport v Welsh Ministers - Judgment | 07 Apr 2026 was the first challenge against a subsidy reviewed by the SAU. This was a high profile and high value challenge, involving a £205m support package for Cardiff Airport by the Welsh Government. The complainant, Bristol Airport, was ultimately unsuccessful in its claim, meaning that the CAT has not upheld any complaints of unlawful subsidies to date. One of the reasons for this is the high threshold of demonstrating that a public authority has acted irrationality. The role of the SAU in assessing the subsidy was not really discussed although the fact that the SAU was critical of the Welsh Government's initial assessment against the subsidy control principles in its advisory report, led to the Welsh Government strengthening its principles assessment with additional supporting evidence from an economic impact study and evidence from a specialist aviation advisory firm.

The decision also provided some interpretation around the provisions in the Subsidy Control Act relating to subsidies for rescue or restructure an ailing or insolvent enterprise which are subject prohibited unless certain conditions are met.

Managing risk: Where subsidies are granted under the principles route, assemble robust market and economic evidence. Universities can assist granting authorities by providing sector context and “what if not” scenarios.

New Streamlined exemption for Arts and Culture

The Arts and culture Streamlined Route and associated guidance Arts and Culture Streamlined Route Guidance was published in April 2026.

This permits subsidies to be granted for revenue, capital and projects for the arts, screen and cultural heritage, subject to eligibility, maximum award amounts and intensities.
Eligible spend specifically includes research and development (including cultural innovation), digital improvements, and conservation/purchase of culturally significant objects and collections.

This may be particularly useful for projects for screen under category 2: including film, TV, digital media (priority areas under the government's Industrial Strategy) and video sharing, extended reality (XR) and video gaming. It may also be useful for universities who are custodians of cultural heritage collections.

A key improvement is higher caps (for example, up to £15m for capital expenditure), addressing previous concerns about lower thresholds in earlier streamlined routes. As always, check eligibility, intensity thresholds and any cumulative limits.

SAU referrals

The SAU has reported on Innovate UK’s UK SHORE subsidy scheme to support R&D that decarbonises the maritime sector. Funding is available to businesses and to universities and research organisations collaborating with industry. Projects are likely to cover alternative fuels, zero emission vessels, energy efficiency and supporting infrastructure across a range of technology readiness levels.

While non binding, the SAU’s report offers a clear view of good practice for scheme level design and evidencing compliance with the subsidy control principles in an R&D context, and reflects learning from earlier SAU reports.

CMA review of the effectiveness and impact of the Subsidy Control Act

The SAU's first statutory review is examining the effectiveness and operation of the SCA 2022 and its impact on competition and investment within the UK. We expect the SAU report to be published shortly.

We will be looking out for the following recommendations:

Increased transparency requirements, potentially around no subsidy decisions above a threshold
More guidance to assist public authorities in deciding which is the most appropriate subsidy control tool to use, e.g., Minimum Financial Assistance, streamlined route or a subsidy control assessment against the subsidy control principles
Consideration of how to make it easier to challenge subsidy decisions

Conclusion

Confidence in applying the SCA 2022 and the principles route is increasing. For universities and research organisations, the risk of successful challenge remains low where decisions are carefully considered and supported by relevant analysis and contemporaneous evidence.

Key takeaways for universities and research organisations

To help manage the risk of subsidies, universities should:

Be clear as to what is and what is not a subsidy
Consider what supporting evidence is required and take reasonable steps to obtain relevant supporting evidence (market benchmarking, options analysis, additionality)
Liaise early with public authorities to address evidence gaps
Keep a detailed, contemporaneous record of your decision making
Ensure scrutiny is proportionate to the project’s value and risk.

How we can help you

If you have any questions or need support with subsidy control issues, please get in touch. Our team can:

Advise on structuring transactions
Assess if a proposed subsidy complies with the subsidy control principles
Advise on application of exemptions, streamlined routes and reporting requirements
Prepare robust records and evidence to justify decisions
Review grant funding arrangements to ensure compliance.