State Aid Matters April 2009
New UK national schemes for the credit crunch and the Commission’s Notice on State aid enforcement in national courts
The State aid world continues to move very quickly. Every week sees new schemes emerging on an EU-wide basis to deal with the downturn. The UK is at the forefront. In this issue of State Aid Matters we particularly take stock of the UK’s newly approved schemes for: (i) de minimis aid up to €500,000; (ii) loan guarantees; (iii) subsidised loans for production of green products; (iv) working capital guarantees to banks to support lending to business; (v) homeowner’s guarantees to safeguard individuals from home repossession; and (vi) asset backed securities guarantees to stimulate mortgage lending.
We also note that while the credit-crunch activity has been going on the Commission has adopted a new Notice on the enforcement of State aid by national Courts which should not go unmentioned. While not altering the law in itself the Notice helpfully consolidates this area, notably following the recent SIDE v CELF case, which arguably has slightly altered the balance of risks faced in this area. In ordinary times this might have attracted more attention.
Fast processing of new schemes under the credit crunch “temporary framework”
As noted in our last issue, in late December 2008 the Commission adopted a temporary relaxation of the State aid rules for emergency access to finance purposes. The “temporary framework” which currently applies until the end of 2010 addresses raised de minimis grants up to €500k, subsidised loans, guarantees, higher risk capital allowances and incentives for the production of green products.
The temporary framework was revised on 25 February with the insertion of certain clarifications, particularly in respect of loan guarantees. The temporary framework provides the legal basis for a host of new national schemes in the UK and elsewhere. It does not make such schemes legal immediately – they had to be notified and cleared by the Commission first – but the UK government has made several notifications and the Commission has very quickly approved many such schemes and the notification process was not at all as arduous as expected or as previously experienced in a more “regular” context.
What has become clear is that provided a Member State sticks exactly to the conditions laid down in the temporary framework rather than try to innovate with its own variations, the Commission will quickly approve the relevant national schemes then let the Member States get on with implementing them. Quick turnarounds from the Commission have become a hallmark of recent State aid practice in the downturn, for which the Commission is to be applauded.
De minimis grants now allowed up to €500,000
The UK was one of the first EU Member States to push through a scheme facilitating higher de minimis payments of up to €500,000. Previously, the Commission’s block exemption on de minimis aid has authorised such payments up to €200,000, so the new scheme represents more than a doubling of public authorities’ flexibility in this area.
The UK scheme, approved on 4 February, allows any UK State authority such as an RDA, City Council or other local authority, to now grant up to €500,000 to any one enterprise that was financially sound as at 1 July 2008, without any need of prior notification to the Commission and approval before implementation, or adoption of a more localised scheme. Authorities using the scheme must simply be careful to adhere to its detail (which is sparse) and inform central government (DBERR) when using the scheme so that the UK is able to submit periodic reports to the Commission on the scheme’s operation in due course.
The point of de minimis grants is that they are intended to be simple and presumed non-distortive of competition due to their relatively modest amounts. They need not be given with too many “strings attached” as to how the money should be spent or with too many excluded sectors (albeit fisheries and primary production of agricultural products remain excluded).
The UK scheme for the UK allows authorities to use up the €500,000 facility by various means such as direct grants, reimbursable grants, interest rate-subsidised loans or loan guarantees. In the latter two cases this facilitates the beneficiaries attracting much larger amounts of finance, where the subsidy element (counting towards the permitted 500k) is only the value represented by the difference between the loan or guarantee secured via the State, and what it would cost (in interest or other charges) under normal market conditions. However, direct grants are by far the easiest and simplest form of aid permitted by this mechanism so many authorities may find it easiest to use this route.
The problem most authorities are likely to face is how to allocate fairly the possibilities for funding that this new legal route affords, given that budgets remain finite and the funds to grant such aid to all comers will not exist. We understand that various authorities around the UK have availed of this scheme already, but relatively sparingly.
| 
Publications & Events 
