State aid and Covid-19: more flexibility for public sector support to industry

The European Union state aid regime prohibits financial assistance to industry unless it is made in accordance with the parameters of the rules. There are controls on the types of industry that can be offered different types of public funding. The EU state aid regime continues to apply to the UK during the implementation phase of Brexit.

The European Commission has just published (13 March 2020) urgent Covid-19 state aid guidance to EU member states (https://ec.europa.eu/commission/presscorner/detail/en/ip_20_459). It confirms that member states are encouraged to use the existing flexibility in the state aid regime to support their economies due to coronavirus.

The options include:

• Non-selective measures. State aid is potentially unlawful if it benefits one economic undertaking or class of undertakings in a competitive market. Non-selective measures, which benefit all, will not generally offend the regime and may include general wage subsidies, suspension of payments of corporate and value-added taxes, or social contributions.
• Financial support to individuals. State aid is potentially unlawful only when targeted at businesses. Broadly, the state aid regime is not concerned with public money being passed to individuals or consumers. State repayment of, for example, “cancelled services or tickets that are not reimbursed by the operators concerned”, will fall into this category.
• Low-value aid. Aid of up to €200,000 to an undertaking in any three-year period from any public sector source is permitted, as it is not deemed to have an impact on intra-community trade.
• Rescue aid. Some types of operating aid to business are potentially compatible with the state aid regime. There are specific provisions that will help in relation to supporting “companies coping with liquidity shortages and needing urgent rescue aid”.

In particular, Article 107(2)(b) of the Treaty on the Functioning of the EU (TFEU) says that aid to “make good the damage caused by natural disasters or exceptional occurrences” is compatible with the internal market. Article 107(3)(b) further provides that “aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a member state” can be compatible with the state aid rules.

These routes can, the Commission confirms, be used to support “damage directly caused by exceptional occurrences, including measures in sectors such as aviation and tourism”.

The Commission has given clearance for state aid notifications in record time in a number of cases related to Covid-19. Further guidance on potential Article 107(3)(b) serious disturbance aid is promised by the Commission.

In practice, although the EU state aid rules are often seen as a barrier to state involvement in funding unprofitable industry, there are a wide range of potential tools that the public sector can use to provide emergency funding to business.

This is likely to come as welcome news to the very wide range of industries (aviation, hospitality and energy, to name but three) that are being heavily affected by Covid-19.

 

Contributed by David Hansom, partner, Clyde & Co