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UK responds to COVID 19 with £330bn of additional support measures for businesses, whilst the European Commission announces special measures to temporarily relax State aid rules

19 March 2020
The UK government has announced a major extension to the support for businesses provided for in the budget last week.  Meanwhile the European Commission has announced a draft proposal for temporary relaxation of State aid rules to enable public authorities to introduce further selective business support measures across the EU in the wake of the crisis.

Further UK government measures for business support

On Tuesday 17 March, UK Chancellor of the Exchequer Rishi Sunak announced a series of additional support measures to protect businesses during this unprecedented time. The Chancellor will make available an initial £330 billion of guarantees to business (equivalent to 15% of UK GDP).

What this means for large businesses: 

  • funding can be accessed via a new lending facility operated by the Bank of England. The scheme is intended to be running by the start of next week. 

What this means for SMEs: 

  • an increase to the amount businesses can borrow through the Coronavirus Business Interruption Loan Scheme from £1.2 million to £5 million, with no payments due for the first 6 months, as Government will cover the first 6 months of interest payments. 

For the Retail, Leisure and Hospitality Sector:

  • all businesses will receive 100% relief from business rates for the next 12 months;
  • businesses operating smaller premises, with a rateable value of over £15,000 and below £51,000, will have access to grants of up to £25,000; and 
  • the smallest businesses will have access to grants up to £10,000.

Any enquiries on eligibility for, or provision of, the above reliefs should be directed to the relevant local authority in which a business is located. Guidance for local authorities on the business rates holiday will be published by 20 March. 

The above measures are all general in their application in the sense they seek to apply to all meeting a stated set of objective criteria.  The expectation therefore is that all such general measures may be implemented without the same comprising State aid.  

The above measures are an extension from the measures announced in the UK budget last week. For more information about last week's budget announcement, please see our previous press release.

European Commission Temporary Framework

On the same day, Commission Executive Vice-President Margrethe Vestager announced that the Commission has prepared a draft proposal for new Temporary Framework, to further enable Member States to support businesses affected by COVID-19. The Commission aims to have the new Temporary Framework in place in the next few days following consultation. 

The new Framework is based on Article 107(3)(b)) TFEU to remedy a "serious disturbance in the economy of a Member State". This article was was also successfully invoked 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. 

While many similarities can be drawn to the Commission's approach to the last financial crisis, a notable contrast is that the Commission has been much quicker this time to increase the flexibility of State aid rules this time in order to help Member States sort out their own distribution of resources to struggling companies with legal certainty.

The Temporary Framework will enable Member States to 

  1. set up schemes to direct grants (or tax advantages) up to €500,000 to a company;
  2. (give subsidised State guarantees on bank loans;
  3. enable public and private loans with subsidised interest rates; and
  4. safeguard aid channelled to the real economy via banks (the new Temporary Framework provides guidance on how to minimise any undue residual aid to banks and to make sure that the aid is passed on to the final beneficiaries in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or lower interest rates.)

Assuming the above is formally adopted within a short space of time (as it surely will be) this will give Member State authorities, whether central, regional or local government, lots of room for maneouvre to determine their own individual responses to COVID 19 using their own resources, while still being sure not to be creating a State aid problem.  Likewise businesses benefiting from such schemes will be able to receive such funds in greater certainty of their legitimacy and therefore without fear of future requests for payback. 

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.

DWF Law LLP has a breadth of expertise in State aid law matters. We are able to draw upon a team of leading experts, in our UK, Brussels and other international offices, who have extensive experience in this area, including working within the UK Government on high profile funding matters, defending projects from recovery and designing projects to meet the rules. 

Further Reading