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Considering government funding? Make sure you’ve considered state aid

Government funding offers a fantastic opportunity for many businesses to secure the funding that they need to expand and enhance their capabilities and compete internationally.

In December 2014, Vince Cable announced that the government’s Regional Growth Fund has now placed over £1bn into the hands of businesses. One recent example was the award by Finance Birmingham of almost £1m to Coventry-based CFS Aero under the Advanced Manufacturing Supply Chain Initiative (AMSCI).

However, manufacturers need to tread carefully. EU state aid rules control the way in which public funds can be used to support commercial activities. The rules are complex but it is vital to get it right. Failure to apply the rules correctly could result in the beneficiary of the aid being required to the repay the funding in full.

What is “state aid”?

State aid refers to the state granting a form of financial assistance to a business where this could distort competition or trade. This includes (amongst other things) grants and cash investments. Whilst you might assume that the funding you’re considering won’t affect competition or trade, in fact it’s very easy to satisfy these conditions.

EU law generally prohibits state aid unless an exemption applies or the European Commission grants specific clearance for the aid to occur.

What are the exemptions?

There are two main exemptions that might apply to the funding that you’re considering:

  • “De Minimis” aid. If your business will receive no more than €200,000 over a two year period, then often this will be below the threshold for the state aid rules to apply. The threshold varies depending on the sector that you’re operating in.
  • General Block Exemption Regulation. This provides various exemptions and approved aid schemes, some of which can apply to manufacters.

The exemptions are complicated and technical. Make sure you seek professional advice before relying on them.

Get advice

If you’re thinking about seeking state funding, make sure you seek professional advice at the earliest opportunity. If an exemption doesn’t apply and clearance is required, it must be obtained before you start the work to which you want the aid to support.

If there is a state aid issue, there are usually a variety of ways of dealing with it. In many cases, it will be possible to bring the potential aid within one of the schemes for approved aid, or it will be possible to exclude, or significantly reduce, the risk of unlawful aid by making fairly minor changes to the funding.

DWF has a team who specialise in state aid issues. For advice, please contact Jonathan Branton or Helen Feinson

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Jonathan Branton

Partner - Head of EU/Competition

I lead the firm in EU/Competition issues, specialising in behavioural antitrust, merger control, public procurement and State aid, and all related issues of public funding, including the UK’s Regional Growth Fund, ERDF and ESIF. I also head up the firm’s Brussels office and the firm’s cross-discipline Central and Local Government sector group.