On Friday 13 March 2020, the European Commission announced its Coordinated Economic Response to mitigate the economic impact of the Coronavirus (COVID-19) pandemic. President of the Commission Ursula von der Leyen reassured Member States that the EU would provide "maximum flexibility on State aid" and do "whatever was necessary to support the Europeans and the European economy".
In its communication on the European Coordinated Economic Response, the Commission confirms that the COVID-19 pandemic qualifies as "unusual events outside the control of the government". In order to combat the economic effects of such circumstances, of which the most affected sectors are health, transport (particularly airlines) and tourism, the Commission notes that Member States are able to take swift action and provide "ample support measures" within existing State aid rules, for example:
- Measures applicable to all companies (e.g. wage subsidies and suspensions of corporate and value added taxes) are outside of the State aid rules;
- Financial support made directly to consumers (e.g. cancelled services) also fall outside the scope of State aid control;
- Current law (by way of the EU Treaty) allows for State aid to remedy a "serious disturbance in the economy of a Member State" (Article 107(3)(b)). The UK successfully invoked this with the Commission during the last financial crisis in 2009 via the "Short term provision of small amounts of compatible aid (De Minimis) scheme" (N43/2009) which recognised the exceptional nature of the disturbance and in effect extended the usual de minimis ceiling to allow public authorities across the UK to grant up to €500,000 per undertaking for a limited time. More recently, the Commission has confirmed that the COVID-19 outbreak in Italy is of a nature and scale that allows the use of Article 107(3)(b);
- The EU Treaty also allows for Member States to provide support to companies suffering from "exceptional occurrences" (Article 107(2)(b)), such as the COVID-19 outbreak. A recent example of this is the Commission's approval on Thursday 12 March of a DKK 91 million (€12 million) Danish aid scheme to compensate businesses forced to cancel events of more than 1000 people due to the COVID-19 restrictions. The approval came within 24 hours of the Commission receiving the notification from Denmark, which demonstrates that the Commission stands ready to act quickly to approve new State aid measures. Such swift reactions have not been seen since the banking crisis of over a decade ago; and
- The De Minimis Regulation and General Block Exemption Regulation (GBER) also offer exemptions for provisions of aid.
For example GBER Article 50 already includes a provision to allow governmental authorities to create aid schemes to make good the damage arising from recognised "natural disasters", without any need to consult the European Commission first. This provision has previously been used to assist following events such as floods and earthquakes. It allows government bodies to fund up to 100% of the costs of making good the damage arising as a result of the disaster (ie. there must be a clear causal link) but must be netted off to the extent that the same damage is covered by existing insurance policies. To our knowledge this has not yet been invoked in response to a pandemic but it is surely being considered.
Further to the above measures, President von der Leyen announced a €37bn Coronavirus Response Investment Initiative, proposed to support the healthcare sector, the labour market and SMEs from all affected sectors. It is expected that the European Parliament and the Council will approve this proposal within the next two weeks. Under the initiative, the Commission would relinquish this year's obligation to request refunding of unspent pre-financing for European structural and investment funds (ESIF) currently held by Member States. Members States would use these amounts not recovered to accelerate their investments related to the COVID-19 outbreak under the European Regional Development Fund (ERDF), the European Social Fund (ESF), the Cohesion Fund (CF) and the European Maritime and Fisheries Fund (EMFF). For more information on ESIF and how to apply, see here.
In addition, €1 billion will be redirected from the EU budget as a guarantee to the European Investment Fund to support approximately €8bn of financing to help at least 100,000 European SMEs and small mid-caps.
UK Chancellor's budget
In the UK, the government announced a £12bn stimulus package on Wednesday 11 March 2020 to counter UK Coronavirus shock. £7bn of this package will support the self-employed, small businesses and vulnerable people, and £5bn will be directed to the NHS.
What this package will mean for business:
- A statutory sick pay relief package for businesses with fewer than 250 employees – employers will be able to reclaim the cost of providing 14 days of statutory sick pay (SSP) per employee as a result of COVID-19. A repayment mechanism for employers to claim this will be set up as soon as possible.
- The Coronavirus Business Interruption Loan Scheme (CBILS) delivered by the British Business Bank, will enable businesses with a turnover of up to £41 million to apply for a loan of up to £1.2 million to relieve cash flow pressures, with the government covering up to 80% of any losses with no fees. To apply for an CBILS-backed facility, businesses will need to consider approaching one or more participating lenders to discuss their borrowing needs – see British Business Bank for further details.
- Business rates retail discount - the government will not charge business rates, a property tax, on companies in the retail, leisure and hospitality sectors for properties below £51,000 rateable value in 2020-21. This includes hotels, restaurants and coffee shops. Businesses may need to apply to their local authority to receive the relief for this tax year and businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority. Guidance for local authorities on the application of the expanded retail discount will be published by Friday 20 March.
- Grants for small businesses - the government will provide an additional £2.2 billion funding for local authorities to provide a one-off £3,000 cash grant to 700,000 of our smallest businesses that pay little or no business rates because of Small Business Rate Relief (SBBR). It is not yet clear how businesses will access these grants.
- The HMRC Time To Pay Scheme - all businesses and self-employed people in financial distress may be eligible to receive support on a case-by-case basis with their tax affairs through HMRC’s Time To Pay service. If you are concerned about being able to pay your tax due to COVID-19, call HMRC’s dedicated helpline on 0800 0159 559.
Local government support in the UK
Further to the above UK-wide measures, local authorities have also begun to unveil funding in support of citizens and businesses in their regions, such as Derbyshire County Council, which announced a £1 million fund on Thursday 12 March to complement the Government support announced in the budget. Council Leader Barry Lewis said it was an "initial amount and could rise, depending on how seriously the virus affected the county". We shall see if other regional and local authorities start pursuing similar initiatives.
New EU Fund for innovative projects to tackle the virus
The EU has also announced a new fund offering grants and other investments for SMEs involved in innovative projects linked to tackling the Coronavirus. Specifically the fund calls for expressions of interest from “startups and SMEs with technologies and innovations that could help in treating, testing, monitoring or other aspects of the Coronavirus outbreak”. The fund expressly states it is open to UK SMEs as well as those from other Member States. The fund opened on Friday and the call closes on Wednesday 18 March. Further information can be found here.
While the above measures by the EU and the UK are reassuring to businesses, particularly in sectors such as aviation, transport and tourism which are most affected, it is acknowledged that the situation in respect of the COVID-19 pandemic is evolving daily and that the EU and Member States must stand ready to reevaluate as the situation evolves. We therefore expect a wide range of further initiatives to emerge in the coming days and weeks, and at a variety of different governmental levels in different countries
For further information on how Governments can support struggling businesses under existing State aid rules during the COVID-19 pandemic, please see our recent press release.