What Is State Aid and How Does it Work?

State aid is a type of advantage that public authorities can grant to organisations. This advantage can be in a variety of different forms, and is something that organisations could not otherwise obtain via the ‘open market.’ The gov.uk website defines this type of state-subsidised aid as the following:

“State aid is any advantage granted by public authorities through state resources on a selective basis to any organisations that could potentially distort competition and trade in the European Union (EU).”

There are some forms of state aid that are illegal within the European Union, due, according to the EU to it “distorting competition” in ways that are harmful to both EU companies and citizens. However, when absolutely necessary, state aid may be legally provided. It is only the case however that such aid may be granted, if aid package and proposition has been requested correctly and has received the European Commission’s approval. With the back and forth expected between the UK and the EU in the coming months, as a deal is thrashed out, covering everything from food standards (likely comparing food standards of the EU and US) to finance, state aid is likely to be a part of these negotiations.

Some forms of state aid can greatly benefit economies, and support growth and development in areas where it is given. For example, state aid can be used to support small and medium-sized businesses, further along research and development, or help to protect the environment. The rules surrounding state aid therefore allow aid that is important in providing support and promoting growth for worthy objectives. One suggestion in the UK is that post-Brexit, these State Aid rules may be changed and some sectors, such as the UK’s fast-growing tech sector and newly qualifying companies may be able to acquire such funding,

Examples of State Aid

Due to its broad definition, state aid rules can apply to a variety of different advantages, including:

  • Tax breaks (such as increases in capital allowances)
  • Loans
  • Grants
  • Funding for charities and other non-profit organisations (when involved in commercial activities)

The rules around compliance for state aid can be rather complex, and can have severe consequences when broken, including suspension of state aid schemes or a withdrawal of them altogether. Therefore, when public bodies plan to offer assistance, it should always be checked as to whether this falls into the terms of state aid, and thereby whether they are complying with state aid rules in providing this advantage.

Transparency Requirements for State Aid

There are certain transparency requirements within the EU’s rules that apply for those both giving as well as awarded state aid. The purpose of these requirements is that they help to establish accountability for the public authorities that grant it, and are therefore implemented to reduce inequality within the market. These transparency requirements enable both companies and citizens to access details on aid that has been previously awarded by the public authorities within the EU, including the amount, the sector, the objective and the location. These are organised by Member States in the database.

The Commission’s transparency database provides information on aid that has been awarded over €500,000 for the following areas, as outlined on the gov.uk website:

  • broadband, energy and environmental, risk finance, rescue and restructuring (R&R), film, and regional aid guidelines”
  • “research, design and innovation (RD&I) framework”
  • General block exemption regulation (GBER), including enhanced capital allowances.”

There are some exceptions to the Commission’s rules on transparency, including those that apply to the agriculture sector. For primary agricultural production, state aid of anything that is €60,000 or over will have to be reported. The threshold is lower for aquaculture, with anything that is €30,000 or more having to be reported.

You can find further details on the Commission’s State Aid Transparency Public Search here.

Do European State Aid Rules and Regulations Still Apply to the UK?

Boris Johnson’s Brexit deal provides the UK with a transition period that is set to last until the end of the current year (2020). Through this transition period, the UK will be under EU laws, whilst the two sides plan out their relationship from 2021 onward, hopefully in the form of a free trade deal. This means that EU regulations for state aid will all still apply to the UK until the end of 2020. Whether these regulations will apply after this period is, for now, unclear, being dependent upon the future trade deal the UK and the EU come to an agreement on. For example, if the UK follows a more Singaporean-economy-based Brexit, things will likely be different with regards to state aid in comparison to previous years.

In past trade deals, the EU have insisted on incorporating controls for state aid. This has recently been brought to attention by a paper from the House of Commons on state aid. The paper concluded: “the closer the market integration with the EU, the more state aid rules form part of the agreement.”

Who Do I Contact About State Aid?

The BEIS state aid team can give advice to funding bodies and public authorities, helping them to understand any potential regulatory issues that may apply, and advice on ways to reduce these issues from occurring, including opting for alternative options to state aid. For private companies, it is advised that you look for independent legal advice to help you better understand the relevant regulations that could apply.