The UK has received approval for a State aid scheme making use of the new options available under the COVID-19 Temporary Framework. This has just been revised by the European Commission on Friday 3 April to include generous measures to fund COVID-19 related R&D, testing centres and factories to manufacture devices, equipment and treatments. The new UK scheme includes the ability to fund such initiatives.
The development will generate great interest across UK central and local government as it provides new ways to lawfully provide public funding support to businesses, including the option to award grants of up to €800,000 to individual businesses affected by COVID-19.
Public funding has been a key policy lever used by governments across Europe to support businesses affected by the coronavirus lockdown. The European Commission adopted special measures through a Temporary Framework on 19 March 2020, which created a basis for national governments to create schemes to lawfully grant assistance to businesses in their jurisdictions that go beyond standard State aid rules and make special allowances for COVID-19 responses. The Temporary Framework was extended further on 3 April 2020 by adding additional flexibility to support COVID-19 related R&D&I, testing centres and factories to manufacture devices, equipment and treatments.
UK State aid scheme (SA.56841)
The UK has had an umbrella notification approved on 6 April 2020, allowing the full spread of UK public sector bodies (e.g. local authorities, combined authorities, LEPs etc), as well as other organisations distributing public funds on their behalf, to make use of six of the ten options under the extended Temporary Framework, these being:
(i) Small amounts of compatible aid
This exemption allows grants (and other awards of public funding, for example repayable advances or tax advantages) of individual benefit up to €800,000 per undertaking. In order to be used, certain key conditions must be met:
- ensuring the recipient of aid has sufficient headroom to receive the funding (i.e. cumulated with any other COVID-19-related benefits under the Temporary Framework up to a maximum of €800,000);
- the aid must only be granted to undertakings that were not "in difficulty" on 31 December 2019;
- the final part of the aid is granted no later than 31 December 2020; and
- if aid is granted to undertakings active in the processing and marketing of agricultural products, the award is conditional on the aid not being partly or entirely passed on to primary producers / not fixed on the basis of the price or quantity of products purchased from primary producers or put on the market by the undertakings concerned.
The maximum aid which can be provided under the cover of the Temporary Framework is €800,000 per undertaking, or €120,000 for undertakings in the fishery and aquaculture sector and €100,000 for those in the primary production of agricultural products. The aid must be granted between 1 February and 31 December 2020.
The Commission in approving this aid measure has taken into account representations that the aid provided will be necessary, appropriate and proportionate to remedy a serious disturbance in the economy. Public sector bodies awarding aid should be mindful about establishing a clear connection to the need for funding and the coronavirus, as well as seeking to only award the minimum aid necessary. We would expect government guidance to be issued on how to do this in due course.
(ii) Aid in the form of guarantees for bank loans
This exemption allows public sector bodies to provide liquidity support to undertakings through the use of guarantees. To support this, the Commission has published generous guarantee premiums (for both investments and working capital loans) which it shall regard to be compatible with the Common Market, provided other conditions are met.
(iii) Aid in the form of subsidised interest rates for loans
As with the above, the Commission has approved a more generous credit risk rating for loans, again with the aim of improving liquidity during this challenging time.
(iv) Support for coronavirus related research and development (R&D)
Public funded grants may be offered for up to 100% of the costs of fundamental research and 80% of industrial research and experimental development into coronavirus and other relevant anti-viral products. A 15% uplift for industrial research and experimental development is available where it can be shown there is cross border collaboration with research organisations or other undertakings.
v) Investment aid for testing and upscaling infrastructures
Public funded grants may be used to cover 75% of the costs of constructing or upscaling testing facilities (rising to 100% provided certain bonuses are present). This includes funding for medical products (including vaccines) and equipment (including ventilators, protective clothing and diagnostic tools) which help fight the spread of the virus.
(vi) Support for the production of products relevant to tackle the coronavirus outbreak
Public funding of up to 80% of the investment costs of setting up production lines / facilities to manufacture Covid-19 related products may be awarded (rising to 100% if certain technical bonuses are added). Aid shall not be awarded to undertakings which were 'in difficulty' at 31 December 2020.
Existing UK Temporary Framework approvals
The UK has already had two schemes approved under the Temporary Framework in late March 2020, however these were limited to the delivery of the British Business Bank's Coronavirus Business Interruption Loan Scheme (CBILS).
The big advantage of the new umbrella scheme is that it shall be available for use by UK authorities at all levels, including central government, devolved governments, local authorities and other bodies administering schemes involving state resources channeled through their own budgets (for example, recipients of funds such as ERDF, delivering programmes of support).
An immediate example of the Temporary Framework's practical relevance will be in the delivery of grants under the Small Business Grant Fund and the Retail, Food and Hospitality Grant Fund.
Separate to the Temporary Framework, the UK has also, following discussions with the European Commission, announced that the Business Rates "Expanded Retail Discount" initiative for 2020-2021, benefiting retail, hospitality, leisure and other businesses, shall be provided on a "no aid" basis. This means it will not cumulate as "aid received" with the other schemes noted above.
There are number of compliance requirements set out within the Temporary Framework, some of which have been revised in the amendment adopted on 3 April 2020. The case-law is clear that only where all of the relevant requirements are met will there be State aid compliance. For example the failure to ensure aid was within the threshold or to check the undertaking in difficulty status, would affect the State aid compliance of the award and therefore be at risk of claw-back in the event of a compliant by a competitor.
Therefore public sector bodies need to be careful to ensure they have an audit trail to demonstrate compliance with all of the requirements.
Further State aid options available to member states
Outside the measures set out in the Temporary Framework, there are a number of other actions public bodies can take within the existing State aid rules to support businesses and citizens during the COVID-19 pandemic:
- Measures applicable to all companies (e.g. wage subsidies and suspensions of corporate and value added taxes) are outside of the State aid rules, e.g. rates relief that applies to all.
- Financial support made directly to consumers (e.g. cancelled services) also fall outside the scope of State aid control;
- On the basis of Article 107(2)(b) TFEU member states can also compensate undertakings in sectors that have been particularly hit by the outbreak (e.g. transport, tourism, culture, hospitality and retail) and/or organisers of cancelled events for damages suffered due to and directly caused by the 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 (i.e. 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 Coronavirus but is surely being considered.
- There are four other options under the current Temporary Framework, which could form the basis of a notified scheme in future. These cover:
- selective support in the form of deferral of tax payments and/or suspensions of social security contributions:
- selective support in the form of wage subsidies for employees:
- aid in the form of guarantees and loans channelled through financial institutions; and
- short term credit insurance
- Under Rescue and Restructuring State aid Guidelines, member states can notify to the Commission aid schemes to meet acute liquidity needs and support undertakings facing financial difficulties. This is how the many cases of government support for large banks across Europe were handled at the time of the financial crisis. e.g. Northern Rock. Given the administration involved this tends to be reserved for the largest and/ or deemed most strategically important businesses only.
- Finally, notification of alternative approaches, both aid schemes and individual measures, for example against the Treaty, also remains possible.
There is a lot of pressure upon UK public sector bodies to quickly set up programmes to provide support to businesses during the COVID-19 lockdown. For example, it is early April and the Government has already asked Local Authorities to roll out the Small Business Grant Fund and the Retail, Food and Hospitality Grant Fund.
Therefore the new UK umbrella State aid scheme will be welcomed for its flexibility by the public sector and businesses looking for support at this challenging time. Public sector bodies will need to check that they have appropriate processes to demonstrate compliance with State aid law requirements, as well as broader legal considerations relating to the handling of public money. For example, it will be important to establish clear criteria upon which to make awards and audit trails to demonstrate that interventions are appropriate and proportionate. We expect further government guidance to be issued in relation to this in the coming days.
For more information please do not hesitate to contact one of our experts below.
DWF has the largest State aid law team in UK private practice and is able to draw upon market leading experts in our UK, Brussels and other international offices. Our experience in this area includes working within the European Commission, Central Government, Local Government and with private sector bodies receiving funds. Therefore, we are on hand if it would be useful to discuss the issues raised in this article or any other element of State aid law.