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.
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:
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.
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.
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:
- 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
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.
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.