How subsidies can be awarded

Where all four limbs of the test set out above are met, the financial assistance will be a subsidy. This does not mean that it cannot be provided, but it must be given in accordance with the rules set out in the 2022 Act. There are various routes that a public authority may use to lawfully award a subsidy.

Standalone subsidies

This route is most likely to be used for subsidies given on a “one off” or recurring basis to a single recipient or identifiable group of recipients. This allows it to be more easily tailored to specific requirements.

Public authorities giving standalone subsidies must carry out an assessment to determine whether the subsidy is consistent with the “subsidy control principles”. These are a set of principles intended to ensure the subsidy will deliver benefits and value for money whilst negatively impacting competition and investment as little as possible. They are listed here: legislation.gov.uk.

The principles require, among other things, that a subsidy is no larger than it needs to be to achieve its objective (“proportionality”). This does not rule out 100% funding, but a public authority should not be funding 100% of costs unless the recipient is unable to contribute anything itself.

Public authorities must also ensure that a standalone subsidy is not prohibited under the 2022 Act. There are various categories of subsidy that are prohibited, including those that are conditional on the use of domestic over imported goods or services (e.g. a “buy British” clause in a grant agreement), those that require relocation of existing jobs, and most subsidies to rescue insolvent enterprises.

Other procedural requirements may also apply, including that details of the subsidy must be published on an online, publicly available subsidy control database.

Subsidy schemes

A subsidy scheme is a set of rules setting out the eligibility criteria and terms and conditions under which multiple subsidies may be given. Subsidy schemes are typically used where a public authority wishes to give financial assistance to a number of potential recipients sharing the same or similar characteristics and for the same purpose. Existing subsidy schemes can be found here: searchforuksubsidies.beis.gov.uk.

Subsidies given under subsidy schemes do not have to be assessed against the subsidy control principles, but the scheme itself must be compliant with the principles and must not permit a prohibited subsidy to be awarded under its terms.

The public authority may create a new subsidy scheme or use an existing subsidy scheme to award the subsidy. It can only use a scheme that it has created itself or that has been created by the Scottish or UK Governments.

Streamlined routes

Streamlined routes are a type of subsidy scheme set up by central government which other public authorities can use to award subsidies. They are pre-approved by Parliament, and so subsidies given under streamlined routes do not need to be assessed against the subsidy control principles. They are available in certain low-risk policy areas: arts and culture; community regeneration; research, development and innovation; energy usage, and local growth. More information on these streamlined routes is available here.

Services of Public Economic Interest (SPEI)

In some cases, a public authority might determine an activity to be a “Service of Public Economic Interest” (“SPEI”) – that is, a service associated with a task undertaken in the public interest that would not ordinarily be supplied, or supplied in an appropriate way, under normal market conditions. Examples include transport in rural areas or social care.

A public authority may provide subsidies for SPEIs and these are subject to a more light-touch approach under the 2022 Act. A service is an SPEI if it is provided for the benefit of the public and would not be provided, or would not be provided on the terms required, by an enterprise under normal market conditions.

For example, providers of childcare in some communities may need to be subsidised because the cost of providing childcare is greater than parents in those communities are able to pay. If a service is an SPEI it is subject to a higher MFA threshold of £725,000 over a three-year period and, for higher-value subsidies, a public authority can award a subsidy even where it is not consistent with all of the subsidy control principles.

For voluntary organisations, this means some activities may be treated under SPEI rules rather than the standard subsidy control regime. Whether an activity is treated as an SPEI is ultimately a matter for the public authority. However, where a voluntary organisation believes it is delivering a service in the public interest that would not otherwise be provided, or would not be provided on the terms required, under normal market conditions, it may wish to ask whether SPEI treatment has been considered.

Minimal Financial Assistance (MFA)

MFA is only relevant if a financial transaction has met all four limbs and is considered a subsidy. If a financial transaction is not a subsidy, then by definition it will not count towards a person’s MFA “allowance”.

Public authorities do not need to comply with all of the subsidy control requirements (including carrying out a subsidy control principles assessment) for low value subsidies called ‘Minimal Financial Assistance’ or ‘MFA’.

Every enterprise may receive MFA up to the MFA threshold (entities under common control, for example a holding company and its subsidiaries, are viewed as a single ‘enterprise’). Currently, this is set at £315,000 over the “applicable period” (£725,000 where it is provided to support SPEI activities – see above).

The “applicable period” is the elapsed part of the current financial year (from 1 April) and the two immediately preceding financial years. Therefore, if a public authority is considering giving MFA funding on 1 October 2026, the authority has to consider what MFA subsidies the recipient has received in the period from 1 April – 1 October 2026 and in the period from 1 April 2024 – 1 April 2026. Any MFA subsidies awarded before 1 April 2024 would not need to be included in that calculation.

Important note: SPEI assistance is aggregated with MFA for the purposes of calculating the recipient’s ‘allowance’, but other subsidies (for example subsidies given under schemes, under streamlined routes, or following a subsidy principles assessment) are not.

For this purpose (and when applying any other rules under the 2022 Act) the point at which a subsidy is “given” is when a binding commitment is made from the public authority to the recipient. That may happen before the funds are actually transferred (for example, where the subsidy is to be paid in instalments). Where a subsidy is conditional on certain requirements being met after a binding commitment has been made, the date that the subsidy is given is still the date of the original binding commitment (and not the date on which the conditions are fulfilled).

Where a public authority intends to award MFA to a voluntary organisation, the organisation will be asked to give a statement setting out any other financial assistance they have received as MFA over the applicable three-year period. While this creates an administrative burden for voluntary organisations, it is good practice to keep clear records of MFA and other financial assistance received so that the organisation is able to provide this statement if and when required.

Where MFA is being awarded, it should be clear from the wording of the Service Level Agreement or grant letter that it is being provided as MFA. If the authority has not stated that money is being provided as MFA then it will not qualify as MFA under section 36(3), and this cannot be done retrospectively. If it was not clearly given as MFA at the time that it was given it will not therefore count towards the recipient’s MFA “allowance”.

MFA should only be used where appropriate to the scale of resource needed to deliver a service. Funding amounts should not be artificially limited to fall under the MFA threshold to avoid the application of subsidy control rules. Voluntary organisations should push back where they think an authority is providing insufficient funding purely in order to avoid having to find an alternative route to MFA for the subsidy required.