Guidance

Levelling Up Fund Subsidy Scheme

Updated 30 December 2022

Subsidy Scheme

1. Introduction

1.1. The Secretary of State makes the following subsidy scheme (the Scheme) in compliance with the Trade and Cooperation Agreement (the Agreement) and in compliance with the UK’s international commitments on subsidy control.

1.2. The Subsidy Control Act 2022 (the Act) will be in full force and effect from 4 January 2023. This Scheme is a legacy scheme and therefore the subsidy control requirements set out in the Act do not apply except for the requirements as to transparency in Chapter 3 of Part 2 of the Act.

1.3. The Scheme is made on 22 December 2022.

1.4. The Scheme will expire on 31 March 2029.

1.5. The Scheme may be referred to as the Levelling Up Fund Subsidy Scheme.

2. Use

2.1. This Scheme may be used by the Department for Levelling Up, Housing and Communities (DLUHC), the Department for Transport (DfT), and public authorities for the purpose of providing subsidies under the Levelling Up Fund on or after 22 December 2022.

3. Compliance with the UK’s international commitments on subsidy control

3.1. The Secretary of State has considered the subsidy control principles in accordance with the UK’s international commitments on subsidy control and in particular Article 366 of Part 2 of the Trade and Cooperation Agreement 2020 (the free trade agreement between the EU and UK). The Secretary of State may also provide funds that do not constitute a subsidy whereby the activity does not meet the characteristics of a subsidy.

3.2 The Secretary of State has considered the activities under the Scheme in accordance with the UK’s commitments to Article 10 of the Northern Ireland Protocol. The Secretary of State is of the view that the Scheme will not provide a subsidy for the production or trading of goods or wholesale electricity in Northern Ireland. Any bid from Northern Ireland that does involve production of goods and services will not fulfil the rules of this Scheme so won’t be funded under it. Where state aid is relevant under the Northern Ireland Protocol it will be implemented under the Levelling Up Fund Northern Ireland General Block Exemption.

3.3. The Secretary of State has considered the prohibitions and other requirements in Article 367 of Part 2 of the Agreement and is of the view that the Scheme does not provide for the giving of a subsidy that would be prohibited by, or in contravention of, a requirement imposed by any provision of that Chapter.

4. Purpose

4.1. This Scheme sets out conditions and requirements to allow DLUHC, DfT and public authorities to award subsidies that are compatible with the Agreement, for specified activities to support the delivery of the Levelling Up Fund.

4.2. Subsidies given under this scheme must comply with:

4.2.1. the general conditions in paragraph 6, and

4.2.2. the conditions specified in the Schedule for each category of subsidy.

This Scheme is capable of being amended from time to time.

5. General definitions

5.1. In this Scheme:

5.1.1. “The Act” means the Subsidy Control Act 2022.

5.1.2. “The Agreement” means the UK-EU Trade and Cooperation Agreement 2020.

5.1.3. “Beneficiary” means the enterprise receiving a subsidy under this Scheme.

5.1.4. “Capital expenditure” means the acquisition of land and/ or buildings, pre-development costs, infrastructure costs, construction costs, reasonable allowances for contingency and inflation, capitalised professional fees and project management costs, finance costs, and the purchase of equipment.

5.1.5. “Contaminated site” a site where there is a confirmed presence, caused by man, of hazardous substances of such a level that they pose a significant risk to human health or the environment taking into account current and approved future use of the land.

5.1.6. “Derelict land” means unproductive land that is so damaged by industrial or other development such that it is incapable of beneficial use without treatment.

5.1.7. “Eligible project costs” means the capital expenditure and/ or land remediation costs incurred by the beneficiary in completing the Project.

5.1.8. “Enterprise” means either a person who is engaged in an economic activity that entails offering goods or services on a market, to the extent that the person is engaged in such an activity, or a group of persons under common ownership or common control which is engaged in an economic activity that entails offering goods or services on a market, to the extent that the group is engaged in such an activity. The definition of an “enterprise” is taken from the Subsidy Control Act 2022 Section 7 which came in to force on 28 April 2022.

5.1.9. “Land Remediation” shall mean the process of restoring derelict land and/or a contaminated site so that it is ready for development.

5.1.10. “Land Remediation costs” includes the costs of studies, site investigations and surveys, the preparation of cost estimates, works to stabilise sites, the costs of treatment to a contaminated site and the costs of treating derelict land to bring it back into productive use.

5.1.11. “Local Infrastructure” means the infrastructure developed and/ or restored at a local level to improve places and shall include offices, retail space, leisure space, housing, hotels, entertainment venues, industrial accommodation, research and development infrastructure, community sports facilities, conferencing and exhibition centres, cultural and tourist attractions, and general site infrastructure such as highways, utilities and electrical charging points.

5.1.12. “Match funding” means funding provided by the beneficiary and/ or one or more third party to meet any proportion of the eligible project costs.

5.1.13. “Pre-development costs” means activities in progress or completed in advance of physical works commencing and include activities such as site investigations, preparing cost estimates, progressing design work, obtaining planning permission, or negotiating land and/or building acquisitions.

5.1.14. “Project” means the activities described in the application submitted to the Levelling Up Fund.

5.1.15. “Public authority” shall mean a person who exercises functions of a public nature, but does not include: (a) either House of Parliament; (b) the Scottish Parliament; (c) Senedd Cymru, or (d) the Northern Ireland Assembly.

6. General conditions

6.1 A public authority must, at a minimum, obtain from a beneficiary the following information before giving a subsidy under this Scheme:

6.1.1. Name of the beneficiary; and

6.1.2. Description of the proposed project, including its location, start and end dates, project costs, match funding, governance structures, delivery methodology and expected outcomes.

6.2. A public authority may not give a subsidy for a project that has started, except where:

6.2.1. the beneficiary has begun incurring or has incurred pre-development costs, but physical works and other eligible project works have not been legally committed to or commenced.

6.2.2. the public authority is of the view the project would not be viable unless it starts before the subsidy is awarded and the public authority has provided written authorisation to the beneficiary for the project to start before the subsidy is given. The Secretary of State reserves the right to support costs incurred prior to the date of award and thus they should not be assumed as eligible.

6.2.3. the public authority is of the view that the presence of a subsidy could widen the project scope and will deliver additional outcomes.

Nothing in sub-paragraphs 6.2.1, 6.2.2 and/or 6.2.3 represents or amounts to a legal commitment or promise or intention or any form of assurance that a public authority will provide a subsidy for any part or all of a project.

7. Subsidy type and valuation

7.1. Subsidies may be awarded in the form of grants.

7.2. The maximum level of subsidy to be provided under the Scheme to a project is £20 million.

7.3. A subsidy can be provided to a beneficiary to complete a project under both Category 1A and Category 1B as long as the combined value of the subsidy does not exceed £20 million.

7.4. The value of the subsidy will be calculated by complying with the conditions specified in the Schedule for each category of subsidy.

8. Transparency

8.1. Public authorities must comply with the transparency requirements set out in Chapter 3 of Part 2 of the Act. Any subsidy awarded under this Scheme that exceeds the value of £100,000 must be uploaded to the subsidy database within 3 months of confirmation of the decision of award.

8.2 Whereby the awarding public authority makes a binding commitment then they are responsible for uploading the subsidy details to the transparency database within 3 calendar months of the subsidy award. The Scheme maintains its ongoing commitment to comply with Article 369 so checks will be undertaken to ensure subsidy awards are uploaded to the transparency database.

9. Cumulation

9.1. A public authority must consider the match funding and take into account the cumulative amounts of subsidies received by the beneficiary for the project, whether given under this Scheme or otherwise.

9.2. Where a project receives cumulative amounts of subsidies which exceed the limits in paragraph 7.2 the project will fall out of scope of this Scheme.

9.3. The limits in paragraph 7.2 may not be circumvented by artificially splitting up a single project into several constituent projects with similar characteristics or objectives.

10. General prohibitions

10.1. A public authority may not give a subsidy under this Scheme that would be subject to any of the prohibitions and other requirements contained in Article 367 of Part 2 of the Agreement.

11. Misuse of subsidy

11.1. A public authority should ensure that any subsidy given under this Scheme is given subject to a condition allowing the public authority to recover the whole or part of the subsidy amount to the extent that the subsidy is used for a purpose other than the purpose for which it was given and to the extent that a beneficiary does not follow the rules of the Scheme thereby misusing the subsidy.

Category 1A: Support for the development of Local Infrastructure

1. Introduction

1.1. A subsidy may be awarded to a Beneficiary under this category to support the delivery of Local Infrastructure (the “Project” for the purposes of this category).

2. Eligible activity

2.1. To be eligible under this category a Project must include one or a combination of the following types of Local Infrastructure:

2.2. Offices

2.2.1. The construction or refurbishment of premises to provide commercial space for occupation by a range of end-users. For example, Grade ‘A’ office development, managed workspace, or co-working and flexible space.

2.3. Retail

2.3.1. The construction or refurbishment of premises to provide commercial space for retail businesses. For example, the reconfiguration of shopping centres, the reconfiguration of department stores, or the redevelopment of vacant high street properties.

2.4. Leisure

2.4.1. The construction or refurbishment of premises to provide commercial space for leisure businesses. For example, the creation of infrastructure to enhance the daytime and night-time economy including cafes, restaurants, and bars.

2.5. Housing

2.5.1. The construction or refurbishment of premises to provide housing. For example, the creation of housing developments, apartments in isolation or where part of a mixed-use development, affordable housing, and social housing.

2.6. Hotels and other accommodation

2.6.1. The construction or refurbishment of premises to provide hotels. For example, the creation of hotels in city and town centres, or different types of accommodation where there is visitor demand.

2.7. Entertainment

2.7.1. The construction or refurbishment of premises to provide entertainment venues. For example, the creation of cinemas, and arenas.

2.8. Industrial accommodation

2.8.1. The construction or refurbishment of premises to provide industrial accommodation. For example, general industrial units and warehousing.

2.9. Research and development

2.9.1. The construction or refurbishment of premises to promote research and development activity. For example, research centres, incubators, grow-on space, and assets which promote collaboration between academia and industry.

2.10. Community sports

2.10.1. The construction or refurbishment of community sports facilities. For example, the creation of leisure centres, pitches and stadiums for amateur and community sports activities, and wellbeing centres.

2.11. Cultural and tourism

2.11.1. The construction or refurbishment of cultural and tourism premises. For example, theatres, galleries, museums, and visitor attractions.

2.12. General infrastructure

2.12.1. The construction of site infrastructure that is used to provide an economic activity – either because the operator of the infrastructure is carrying out an economic activity, or because the infrastructure provides a specific benefit to one or more identified third parties. For example, the creation of highways, site servicing, utilities, electrical charging points, and general preparation of development land including demolition and clearance.

2.13. Conference and exhibition centres

2.13.1. The construction or refurbishment of conference and exhibition centres. For example, facilities providing auditoriums, events space, and meeting rooms.

3. Enterprise eligibility

3.1. A subsidy can be provided to any beneficiary creating local infrastructure.

4. Eligible costs

4.1. Subsidies may only be awarded under this category for the following eligible costs of a Project:

4.1.1. Necessary and proportionate capital expenditure incurred by a beneficiary to deliver the project.

4.2. A subsidy should not compensate for capital expenditure the beneficiary would have funded in the absence of any subsidy.

5. Further conditions

5.1. Local infrastructure shall be available to users on an open basis.

5.2. Users will pay market price to use or purchase the local infrastructure.

5.3. Bespoke local infrastructure shall not be created for the benefit of any one beneficiary or user.

5.4. Any third-party operator of the local infrastructure shall be appointed through an open and transparent procurement process.

5.5. The value of the subsidy shall not exceed a viability gap which has been determined ex-ante by independent industry experts.

5.6. The beneficiary must commit to maintain the use of the project until 31 March 2032.

6. Subsidy ratios

6.1. A subsidy can be awarded under this category against eligible project costs up to the value of the viability gap.

7. Subsidy thresholds

7.1. The maximum subsidy to be provided to a beneficiary or beneficiaries for a project is £20 million.

8. Subsidy type

8.1. Subsidies will be provided in the form of grants.

Category 1B: Support for investment in Land Remediation

1. Introduction

1.1. A subsidy may be awarded to a Beneficiary under this category to support the delivery of Land Remediation (the “Project” for the purposes of this category).

2. Eligible activity

2.1. To be eligible under this category a Project must complete Land Remediation activities.

3. Enterprise eligibility

3.1. A subsidy can be provided to any enterprise carrying out Land Remediation activities.

4. Eligible costs

4.1. Subsidies may only be awarded under this category for the following eligible costs of a Project:

4.1.1. Necessary and proportionate Land Remediation costs incurred to complete Land Remediation activities which have been determined by independent industry experts.

4.1.2. A subsidy should not compensate for expenditure incurred to complete Land Remediation activities which the beneficiary would have funded in the absence of any subsidy.

5. Further conditions

5.1. The value of the subsidy shall be the total of Land Remediation costs less the estimated uplift in land value of the remediated land. The estimated uplift in land value of the remediation land should be determined ex-ante by independent industry experts.

5.2. Remediated land which has benefited from a subsidy shall only be disposed of at market value.

6. Polluter pays principle

6.1. The Secretary of State acknowledges that “polluter pays principle” (that originates from the multilateral environmental agreement known as the “1992 Rio Declaration on Environment and Development, the Climate Change Convention and Convention on Biological Diversity” and in particular Principle 16 of that agreement) is embedded in UK legislation and acknowledges compliance with the principle within this Scheme.

6.2 Where the person is clearly identified as being responsible for polluting land that is identified (by this Scheme) as a contaminated site, that person must finance the remediation in accordance with the polluter pays principle and no subsidy must be provided to support this activity. Where the person responsible for the pollution is not identified or cannot be made to bear the cost, the person undertaking the remediation work may receive a subsidy.

6.3. By ‘person responsible for the pollution’ it is meant the person liable under the law applicable. According to the polluter pays principle in the UK, those responsible for causing the pollution are obliged to make the land safe for its current use. Subsidies will not be available under the scheme in such cases unless the polluter cannot be identified or made to bear the cost.

6.4. The scheme foresees the availability of a subsidy to complete additional work to the land in order to make it safe for any new use; for example, to bring land up to the higher environmental standards required for the construction of new housing. In such cases, independent industry experts will calculate the additional cost of making the land safe for any new use. Independent industry experts will ensure that there is a clear distinction between works that are necessary to make the land safe for its current use and works that are required to make it safe for any new use. A subsidy will only be available for the additional cost of making the land suitable for any new use.

6.5. Where there is both derelict land and polluted land, the polluter pays principle will apply to the polluted element of the land.

7. Subsidy ratios

7.1. A subsidy can be awarded under this category against Land Remediation costs up to the value calculated by paragraph 5.1.

8. Subsidy thresholds

8.1. The maximum subsidy to be provided to a beneficiary or beneficiaries for delivering the project is £20 million.

9. Subsidy type

9.1. Subsidies will be provided in the form of grants.