Subsidy control update for the HE sector
A review of recent developments in subsidy control and what they mean for universities and research organisations.
The aim of the Subsidy Control Act 2022 (the Act), now well established, was to introduce greater flexibility for the public sector to grant subsidies to support business and promote economic growth, while ensuring compliance with the rules.
However the complexity of the rules, coupled with the need for specialist expertise and the requirement for self-assessment of subsidies, has meant that the approach to subsidy control has largely been uncertain and cautious.
For universities and research organisations engaged in research and innovation, collaboration with businesses and skills development, this has sometimes resulted in conflict between supporting growth and innovation and the restrictions imposed by the subsidy control roles.
As the UK subsidy control regime matures, we are beginning to see signals that this is changing as the approach to subsidy control becomes clearer and government introduces changes to cut some of the red tape.
Here, we set out a review of the key developments over the last the six months, what they mean for universities and research organisations and how we can help you navigate this complex area.
How do the subsidy control rules apply to universities and research organisations?
The subsidy control regime only applies to organisations carrying out commercial activities because in order for a subsidy to exist, it must provide a selective advantage to an enterprise. This means that universities often fall outside its scope as research and development and the transfer of know how are generally treated as non-economic activities.
However, there may be circumstances where subsidy control is relevant, for example, where a university is flowing down a subsidy to other beneficiaries, where the university is acting through its commercial subsidiary, or increasingly where projects or activities are revenue generating or involve the allocation of intellectual property rights, which in turn may be revenue generating.
What's new
Higher thresholds for mandatory referrals
From 4 August 2025, the threshold for mandatory referrals to the Competition and Markets Authority (CMA) for an independent advisory review into proposed subsidies has increased from £10 million to £25 million for most sectors. The £5 million threshold remains for sensitive sectors. Mandatory referrals can be time-consuming for both a public body and the CMA. Since the Act came into force, 96 mandatory referrals have been made; much higher than anticipated. This change allows the CMA to focus on higher-value subsidies that could impact competition and reduces delays on public bodies in implementing subsidies.
The message for universities and research organisations in receipt of public funding remains clear - all subsidies should still be carefully scrutinised against the subsidy control principles, with a detailed record kept of the decision-making process and supporting evidence. Updated guidance published by the Department for Business and Trade can be found in the Subsidy control principles assessment guide.
Importantly, the assessment process should be made at the time of the proposed subsidy decision, based on the information available at the time of the decision and foreseeable developments. This was recently reinforced in the Competition Appeal Tribunal decision in Mr Aubrey Weis v Greater Manchester Combined Authority.
New Sector-specific exemptions
Several sectors are already benefitting from exemptions under the Act, aimed to promote growth. More are on their way, for example, subsidies in the arts and culture sector. It will be interesting to see if the scope of the proposed streamline route covers films, particularly as this is a growth area for many universities.
The Research and Development and Innovation Streamlined route was one of the first streamlined routes to be introduced permitting certain subsidies for feasibility studies, research and development, as well as innovation activities for SMEs, provided they fall within the conditions of the streamlined route. However, the relatively low cap on the maximum amount of aid permitted means the usefulness of these schemes has been limited.
We would argue that increasing the caps should be one of recommendations coming out of the subsidy control review - which we discuss further below.
CMA referrals
The Subsidy Advice Unit of the CMA has recently reported on the first proposed subsidy schemes promoted by UKRI under the Act. UKRI is a key source of government funding for the HE sector. Whilst the reports are issued for guidance and provide a non-binding assessment on the extent to which the scheme complies with the subsidy control principles, they provide useful insight into the approach for carrying out a subsidy control assessment into research and development (R&D)projects.
The DRIVE35 Scale up Grants scheme will provide R&D funding in the form of grants to fast-track near-commercial pilots for zero-emission vehicle (ZEV) technology, to help businesses scale up, by bridging the gap between initial R&D and mass production. The amount of funding to be made available to each successful applicant is likely to be between £2 million and £20 million with an intervention rate of up to 50% of project costs for each individual subsidy. Applicants must be able to demonstrate match funding.
The rationale for the scheme is clearly identified as providing R&D grants to fast-track the pre-commercialisation of innovative ZEV technologies to help address the challenges for scale up companies which risk market failure. However, the SAU found weaknesses in UKRI's assessment of why other forms of measure, such as loans, would not achieve the scheme's aims and the wider assessment of the market affected. It recognised that the structure of the scheme contained safeguards such as a competitive bid process, cost-caps, match funding, clawback and monitoring requirements, to ensure that any subsidy was proportionate. Interestingly there is a suggestion from the SAU that public bodies should also be seeking to benefit from the commercialisation of technology if the subsidised activity is successful and profitable and we may see more schemes where public bodies want to have a share of any intellectual property rights. Another comment which we frequently see is for greater evidence to demonstrate how the scheme has been designed to minimise the impact on competition, particularly with regard to international competition. In practice this means that the SAU is looking for detailed economic analysis and studies to support a subsidy scheme which places quite a burden on public bodies.
However, as mentioned above, the increase of the thresholds for mandatory referral may help to ensure that only the very high value schemes will be subject to this detailed level of scrutiny.
SAU
What does recent case law tell us?
A complainant's right of redress in relation to a subsidy control decision is by way of judicial review in the Competition Appeal Tribunal (CAT).
The number of appeals remain low but the trend seems to be upwards, with two appeals lodged in the last quarter.
Of the four cases to date, three focus on whether a measure constitutes a subsidy in the first place, including if financial assistance is on market terms and therefore does not confer an economic advantage. In the fourth case, the focus in on financial assistance in the form of marketing support.
The issue in the Weis case mentioned above was whether financial assistance in relation to a property development transaction was on market terms applying the Commercial Market Operator (CMO) principle, i.e. would a commercial market operator have lent money on similar terms.
The CAT noted that the public authority was supported by experienced officers and external advisers who had "considerable and positive experience in lending" and an "interest and incentive in obtaining commercial terms". This was a determining factor in finding that the transaction was on market terms. The CAT also adopted the same CMO principles as applied in State aid caselaw. This ruling provides helpful clarity because many public bodies are seeking to rely upon the CMO principles to avoid financial assistance being subject to the subsidy control rules.
The most recent appeal by Bristol Airport is interesting as it is the first case to challenge a subsidy reviewed by the CMA. The appeal relates to a decision by the Welsh Government to provide subsidies of £205 million to Cardiff Airport. The grounds of challenge allege a failure to have regard to the subsidy control principles under the Act. As CMA reports are non-binding, we will be looking to see how much weight the CAT gives to the CMA review process.
CMA review of the effectiveness and impact of the Subsidy Control Act
The SAU is required by the Act to review the effectiveness and operation of the Act and its on competition and investment within the UK. The SAU has carried out a public consultation, roundtables with specialist subsidy control advisers, case studies and stakeholder interviews and is conducting data analysis in order to be able to publish its report in Spring 2026.
We were very pleased to be invited to attend one of the roundtables and it was interesting to share experiences of how the subsidy control regime is working in different sectors and the perceptions of both public bodies and beneficiaries alike. A common takeaway was the need for more guidance and clarity so that organisations can be more confident in their decision making processes around subsidy control. Other suggestions included greater transparency of subsidy decisions, including perhaps the need to record the reasons for a no subsidy decision.
Key takeaways for universities and research organisations
To help manage the risk of subsidies, public bodies should:
- Be clear as to what is and what is not a subsidy
- Ensure you have all the relevant information
- Consider what supporting evidence is required and take reasonable steps to obtain relevant supporting evidence
- Keep a detailed and contemporaneous justification of your decision-making process.
The level of scrutiny should be proportionate to the value of your project or scheme.
For complainants, the standard of proof remains high. In the two cases decided to date, there has been no finding of a subsidy. In the Weis case, the CAT confirmed that a public authority is afforded a "wide margin of judgment" in reaching decisions and the CAT will avoid substituting its own view for the decision-makers unless the public authority has acted irrationally.
How we can help you
If you have any questions or need support with subsidy control issues, please don’t hesitate to get in touch. We’re here to provide practical, expert advice and help you navigate this complex area with confidence.
Our team can:
- Advise on structuring transactions to mitigate subsidy control risk
- Assess if a proposed subsidy complies with the subsidy control principles
- Advise on exemptions, streamlined routes and reporting requirements
- Prepare robust records and evidence to justify decisions
- Review grant funding arrangements to ensure compliance