Public authorities regularly provide financial support to subsidiaries and third parties, from loans and guarantees to land deals, fee concessions and other support for housing, regeneration, energy projects and local service delivery.
Not all financial assistance is a subsidy. Some support may be provided on fully commercial terms, some may fall outside the regime because the recipient is not acting as an enterprise, and some may be covered by an exemption or streamlined route. However, the key risk for authorities is assuming that subsidy control only applies to grants. It does not.
Under the Subsidy Control Act 2022, financial assistance can be a subsidy if it satisfies the four-limbed test. In broad terms, this means asking:
Is the assistance given, directly or indirectly, from public resources by a public authority?
Does it confer an economic advantage on one or more enterprises?
Is it specific, meaning that it benefits one or more enterprises over others?
Does it have, or is it capable of having, an effect on competition or investment in the UK, or on trade or investment between the UK and another country?
If the answer to all four questions is yes, the support is likely to be a subsidy. If one or more of the limbs is not met, it is not a subsidy.
For finance and treasury teams, the most important limb is often the second: whether the support gives the recipient an economic advantage. In simple terms, would the recipient have been able to obtain equivalent support on the same terms from a commercial market operator? If the answer is yes, there may be no subsidy. If the answer is no, the difference between the authority’s terms and market terms is likely to represent an economic advantage.
This is where financial evidence matters.
Loans
A loan may constitute a subsidy where it is provided on terms more favourable than those available in the market. The most obvious example is a below-market interest rate, but the assessment should go further than the headline rate.
Authorities should also consider the wider lending terms, including the loan term, repayment profile, security, covenants, fees, ranking, default protections and borrower credit strength. Features such as a long-term unsecured structure, an interest-only period, weak covenant protection or repayments that depend on project success may all have value to the borrower, even where the stated interest rate appears reasonable.
Guarantees
A guarantee may be a subsidy even where no cash is paid upfront. It can improve the borrower’s credit standing, unlock finance that would not otherwise be available, or reduce the interest rate charged by a lender. Authorities should consider whether a commercial guarantor would provide the same support, on the same terms, for the same fee.
Other arrangements that may give rise to a subsidy
Other forms of support may also give rise to subsidy control issues. These can include land or property transactions, discounted leases, rent-free periods, deferred payments, equity investments, joint ventures, indemnities, underwrites, revenue guarantees, fee waivers and free or discounted access to assets or services.
The key question is whether the authority is providing an enterprise with something of value on terms that would not be available in the market. Authorities should not assume that there is no subsidy simply because no cash changes hands.
Support may have value where it reduces costs, transfers risk, improves cash flow or provides access to an asset or service. Where support is targeted at a particular company, developer, operator, project or sector, authorities should consider whether it could affect competition, investment or trade.
Compliance is not just a legal exercise
Legal advice is important, but subsidy control compliance often depends on financial and commercial evidence. Before providing support, authorities should be able to evidence the policy objective, why intervention is needed, whether the recipient is an enterprise, whether support is on market terms, how any subsidy has been valued, whether the subsidy is proportionate and how any distortion to competition or investment has been minimised.
Getting this wrong can have serious consequences. A subsidy may be challenged by competitors or other interested parties, leading to delay, cost, reputational damage and the possibility that the Competition Appeal Tribunal orders recovery of the subsidy. That could mean unwinding a transaction, recovering financial support from the recipient, or reopening decisions that have already been politically approved. This is especially difficult where support has already been relied upon by a project, borrower or delivery partner.
This evidence should therefore be prepared before decisions are made, not after heads of terms have been agreed or political commitments have been announced. Retrofitting a subsidy control assessment after the event is rarely satisfactory and can leave the authority exposed if the decision is later scrutinised or challenged.
How Arlingclose can help
Arlingclose can support authorities in assessing whether proposed financial assistance is likely to confer an economic advantage and, where relevant, calculating the value of that advantage. We can also help structure loan, guarantee and other financial terms so that a subsidy does not arise. This includes market-rate loan pricing, credit assessment, guarantee fee analysis and review of repayment terms, security and covenant structures.
If you have any queries or require support, please contact pmarshom@arlingclose.com.
15/06/2026
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