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Could the Government use State funds to help businesses affected by the Coronavirus?

05 March 2020
Jonathan Branton, Head of EU/Competition at DWF, comments on whether Governments may step in to help businesses affected by the Coronavirus: 

"The most immediate steps which any Government or other public authority will want to take in the event of a pandemic include investments in enhancing border control operations and providing medical care to citizens, which are rightly outside the scope of State aid law.

"If a European Government intervenes and uses public funds specifically to help certain businesses from resulting economic shockwaves, however, then State aid rules for aid to business have to be considered.  State aid rules are the same across the EU and notwithstanding Brexit considerations the EU rules still apply in the UK as well, at least for the time being until the end of the so-called 'transition period' we are now in (set to end on 31 December 2020).

"There are many options for governments across Europe to intervene within State aid law without difficulty. One option is to design a general measure, whereby all businesses can benefit from the same subsidy on equal terms.  For example, extending corporation tax payment terms.  The advantage of this approach is that because of its lack of selectivity, such an initiative does not qualify as State aid, hence it can be delivered without delay or further administrative requirements, provided the facts demonstrate it is genuinely a general measure. 

"Another option is to recognise there may be State aid granted but use existing State aid mechanisms (known as block exemptions) to intervene and grant aid lawfully. The existing "De Minimis" block exemption is normally particularly useful in such situations because it allows aid to be provided with relatively low administration up to a maximum of €200,000 (circa £170k at current conversion rates) per corporate group. Such amounts mean little to multinational corporations but can be a lifeline to small businesses. National governments (and/or more localised forms of government) can readily adopt schemes to make use of this, assuming they can set aside the funds with which to do it to begin with.

"Should a Government consider this insufficient it could consider other block exemption regulations albeit this may be ineffective as they tend to support new investments rather than day to day operations and cashflow. 

"Alternatively again, governments can choose to seek special dispensation by forming a special scheme outside the block exemptions and seeking European Commission approval.

"For example, a particular article in the EU Treaty (107(3)(b)), exists to allow  State aid to remedy 'a serious disturbance in the economy of a Member State'.  "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' which recognised the exceptional nature of the disturbance and in effect extended a De Minimis ceiling to allow public authorities across the UK to grant up to €500,000 per undertaking for a limited time. 

"One requirement of this scheme was that businesses which were already in difficulty (as of the beginning of the crash in 2008) could not be supported, therefore the measure was there to assist business struggling specifically from the disturbance of the time not those who might well have gone out of business anyway. This is therefore a precedent which some European governments may wish to consider depending on how events unfold.

"If governments wish to assist strategically important but struggling businesses on a completely different scale (in terms of funds involved) then another State aid route is to seek Commission approval under the so-called Rescue and Restructuring Guidelines, which requires investment in a credible restructuring plan to return the business to good financial health over time. 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.   

"Clearly all governments across Europe will currently be united in hoping that for the time being, large scale government interventions to support ailing businesses will not be required.  However given the scale of other planning that appears to be underway, it is likely that such things are at least now being considered."

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