Updated: Amended overview and state aid rules to provide a clearer introduction to state aid for those that have no experience of it.
Overview
Using taxpayer-funded resources to provide assistance to one or more organisations in a way that gives an advantage over others may be state aid.
Giving assistance as state aid will nearly always be more time consuming and difficult than designing assistance in a way that avoids doing so. Some state aid is illegal under EU rules because it distorts competition in a way that is harmful to citizens and companies in the EU. But where it is unavoidable, state aid can be given legally by:
using one of a set of approved EU mechanisms for state aid
by getting approval for the particular scheme from the EU Commission
State aid rules
It is important to think about the implications of state aid at an early stage. Doing so allows assistance to be designed and given more quickly and effectively and avoids potential problems later. A programme of assistance that does not follow the rules could be forced to close. Giving state aid illegally could result in the money having to be clawed back with possibly very serious consequences for the recipient.
A public body intending to provide assistance should first satisfy itself whether or not the assistance is likely to be a state aid. ‘State Aid: the basics guide’ gives advice on how to do that. Note that state aid is not limited to giving grants to companies. Providing office facilities at low cost to a not-for-profit organisation could be state aid as could providing cover for pension liabilities for staff transferred under the Transfer of Undertakings Regulations (TUPE) rules. Other examples are given in the guide.
If the assistance is state aid, or is likely to be, ideally the assistance should be redesigned so that it is not. But if giving state aid cannot be avoided, it is much easier and quicker to use an existing approved mechanism rather than to seek separate approval which could take 9 months or more. ‘The state aid guide: guidance for state aid practitioners’ provides guidance on existing mechanisms.
Getting advice
Where seeking specific approval is unavoidable, public bodies should get advice from specialist teams in relevant government departments, in the devolved administrations or from the Department of Business, Innovation and Skills (BIS) state aid team. General advice is also given in ‘The state aid guide: guidance for state aid practitioners’.
The guidance provided here is interpreted from the regulations and other documentation published by the EU Commission on its website – this remains the definitive source of information.
Our main message is get advice early. This will help you to avoid problems later on. State aid rules can be complex and getting it wrong can mean you have to recover aid from businesses.
Advisers can help you to:
design aid to avoid or minimise the element of state aid
avoid giving illegal state aid and the penalties for this
select and use the most suitable available avenues for state aid
handle notifications and procedures for getting state aid approval
Please complete the State aid assessment form if you are planning to fund a project and contact us.
As well as the information on this website, the following organisations can provide help to government departments, local government and other organisations using public funding:
state aid teams in Defra for support for agriculture, fisheries and aquaculture, DfT for transport and DCLG for support for land and property regeneration
state aid teams in the Scottish government, the Welsh government and the Northern Ireland Executive
BIS state aid team, email: sapu@bis.gsi.gov.uk for other queries from funding bodies only
Private sector organisations that may get assistance from public funds should first contact the funding body concerned and, if necessary, get independent legal advice on how the regime may apply to their circumstances.
Notification
The European Commission monitors and controls state aid in the EU by requiring Member States to notify the Commission in advance of proposed state aid in order to ensure compliance.
There are a few exceptions to the notification requirement, namely:
if your measure falls within the De minimis regulation ie you are giving less than 200,000 euros over 3 fiscal years
measures which are covered under a pre-existing and approved scheme
measures falling within the General Block Exemption regulation
If none of the above conditions are satisfied, you will need to obtain approval, contacting the State Aid Unit in the first instance. The following sections cover the various regulations and procedures in more detail.
Do I need to notify my aid project?
State aid process flow chart
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Notification process
‘State aid notification process flowchart’
Notification is not necessarily a quick or easy process. It is often easier to design aid measures to comply with a block exemption regulation etc so that notification is not required. State aid approval cannot be taken for granted - you should factor in a degree of uncertainty – the Commission may block, delay or request modifications to proposed schemes.
It is difficult to predict exactly how long approval will take but as a guide, straightforward cases where there is a good fit with the rules can be expected to be resolved within 6 to 9 months. More complex cases will take longer.
Please note that State Aid Branch will provide advice on process and on developing content of notifications but you are ultimately responsible for drafting the notification and making the case.
What is involved in pre-notificaiton?
After a policy is designed and the need for notification has been identified, the pre-notification (essentially a draft notification) is developed and submitted by the applicant public authority’s policy lead. This is signed off by the State Aid Branch and validated by the UK representative. The pre-notification will then be submitted via State Aid Notification Interactive (SANI) to the Commission, and the pre-notification period begins.
In most cases, the Commission will respond with a request for further information and / or to arrange a discussion. There can be several rounds of questions and answers and refinement of the notification and scheme over a period of some months until the Commission is satisfied that it can be approved. They will then invite the applicant to submit final notification via SANI, and final approval should normally be given within 2 months of final notification.
How you can help us
Think state aid early - take time and ensure sufficient resource is made available to understand state aid implications and risks of developing policy options.
Invest time in understanding the relevant frameworks and guidelines and how your scheme fits with their requirements. Robust justification will be required where an aid measure departs from these. If you are uncertain about whether your scheme meets the rules, contact the State Aid Branch for further advice.
Be honest with us about difficulties and areas of uncertainty.
Providing evidence instead of assertions will enable your scheme to proceed more efficiently.
De Minimis Aid regulations
De minimis aid is used to describe small amounts of state aid that do not require European Commission approval.
The European Commission considers that public funding which complies with the de minimis regulation has a negligible impact on trade and competition, and does not require notification and approval. The total de minimis aid which can be given to a single recipient is €200,000 over a 3-year fiscal period. This can be given for most purposes, including operating aid, and is not project-related.
This does not mean that all funding under the €200,000 ceiling should be counted as de minimis. It is strongly recommended to give even small amounts as aid under a specific approved scheme, or a block exemption, if possible, and to keep the de minimis cover as a back-up for when there are no other options.
The maximum de minimis funding any single recipient can receive is €200,000 (cash grant equivalent) over a 3-year fiscal period. The sterling equivalent is calculated using the Commission exchange rate applicable on the written date of offer of the de minimis funding.
This ceiling takes into account all public assistance given as de minimis funding over the previous 3 fiscal years and which can take various forms (grants, loans, subsidised contracts, etc). Aid given under an approved scheme does not have to be cumulated with de minimis aid.
There are a few things you should keep in mind when considering de minimis aid:
De minimis aid cannot be given for export related activities (except attendance at trade fairs), agriculture and fisheries or aid favouring domestic over imported products. If you wish to give aid for agricultural activities, separate de minimis regulation applies; you may wish to contact Defra for this. If the aid you wish to give does not fall under an existing approval you need to obtain approval, contacting the State Aid Unit in the first instance.
De minimis aid does not affect the level of state aid that a recipient can receive under any other schemes approved by the Commission, ie it is cumulated only with other de minimis aid.
Administration
When using the de minimis regulation, public authorities must take the time to read and understand the regulation and to satisfy themselves that they are in compliance. The key requirements and processes are as follows:
When granting de minimis aid you must ensure that the new award does not breach the €200,000 ceiling over a 3-year fiscal period.
You must ask the enterprise concerned about any aid received during the previous 3 fiscal years and determine how much of this was de minimis aid.
You must also inform the recipient explicitly that it is de minimis aid you are giving them, for their future reference. The offer letter should include the value of the award in euros and the following paragraph:
Under EC regulation 1998/2006 (de minimis aid regulation), this is a de minimis aid. There is a ceiling of €200,000 for all de minimis aid provided to any one firm over a 3-year period. Any de minimis aid awarded to you under this offer letter will be relevant if you wish to apply, or have applied, for any other de minimis aid. For the purposes of the de minimis regulation, you must retain this letter for 3 years from the date on this letter and produce it on any request by the UK public authorities or the European Commission. (You may need to keep this letter for longer than 3 years for other purposes.)
You should read our State Aid: the basics guide and our ‘State aid fequently asked questions’ and speak to the State Aid Unit if you have any further questions about de minimis aid. You may also find it useful to read the full text of the regulation on the European Commission’s Competition website.
General Block Exemption regulation
The General Block Exemption regulation (GBER) consolidates into one text and harmonises the rules that were previously existing in 5 separate regulations. The European Commission adopted the General Block Exemption regulation on the 29 August 2008, reducing the administrative burden for the public sector, the beneficiaries and the Commission. The GBER covers a range of pre approved state aid areas that do not require individual approval from the European Commission in advance. Aid granted under cover of the regulation only has to be notified within 20 days of the aid being granted.
The regulation authorises aid in favour of SMEs, research, innovation, regional development, training, employment of disabled and disadvantaged workers, risk capital and environmental protection. The regulation also introduces aid measures promoting female entrepreneurship, such as aid for young innovative businesses, aid for newly created small businesses in assisted regions, and measures tackling problems like difficulties in access to finance faced by female entrepreneurs.
There is a section covering the GBER in detail in ‘The state aid guide: guidance for state aid practitioners’ and you can find the full text on the Commission website. If you have any more questions or need further information on this or any other state aid issue, contact the State Aid Unit.
Administration and notification of General Block Exemption aid measures
You are required to send the Commission a summary information sheet about the aid measure via the State Aid Notification Interactive (SANI) within 20 working days following implementation of the measure. A copy of the information sheet may be found at annex III of the regulation.
The General Block Exemption regulation contains detailed guidelines and conditions particularly as regards definitions, eligible costs, maximum aid amounts and scope (ie sectors or areas that can or cannot be supported). Aid administrators are responsible for ensuring compliance with all of the conditions of the general block exemption regulation and we strongly recommend that you take the time to read and understand the regulation before using it. Please note that these requirements include retention and provision of accurate and timely information on the usage of the scheme as required, in particular for the annual return and monitoring exercises.
Please seek the advice of State Aid Branch if you have any doubts about the compliance of your scheme with the state aid rules.
Using State Aid Notification Interactive
To be registered on SANI please contact the State Aid Branch. For help using SANI please consult the SANI manual.
Please note that you will need to provide a web site link to the scheme. This should provide full details of the scheme including the criteria for qualifying for aid, eligible costs, scope etc. By doing so, you will fulfil the requirement that Member State have to publish on a website full details of the scheme. The link to the website must be given on the SANI submission otherwise the summary information sheet cannot be submitted. Please be aware that the Commission frequently check the websites provided in summary information forms.
Once completed, please send the electronic summary information sheet via SANI to State Aid Branch who will send it to the Commission for submission.
State aid regulations and frameworks
If you are unsure whether your state aid project fits under a pre-existing scheme, you should search for a matching scheme using the EU Commission State Aid case search tool.
All state aid rules and regulations and further guidance on these may be found on the Commission’s website. The main measures are:
Horizontal measures
De minimis and block exemption regulations
De Minimis Aid Regulation 1998/2006
SME Definition from January 2005
General Block Exemption Regulation
General Block Exemption regulation – frequently asked questions
Environmental aid
State aid for Environmental Protection Guidelines
Regional aid and UK assisted areas
State aid, provided as regional aid, can be used to promote the economic development of certain disadvantaged areas within the European Union.
On the basis of Article 87(3)a and Article 87(3)c of the Treaty, State aid granted to promote the economic development of certain disadvantaged areas within the European Union is considered compatible with the common market by the European Commission. This kind of state aid is referred to as regional aid.
Regional aid for business consists of aid for investment, or in certain limited circumstances operating aid, targeted on specific regions to redress regional disparities. Increased levels of regional investment aid may be granted to SMEs located within the disadvantaged areas.
Current assisted areas map
Assisted Areas are those locations where regional aid may be granted under EU legislation. The current Assisted Areas Map came into effect on 13 February 2007, and remains in force until 30 June 2014. The map was reviewed in response to the European Commission’s revised Regional Aid Guidelines. The review concluded with the publication of the current map in October 2006.
Forthcoming assisted areas map
The 2014 to 2020 UK Assisted Areas map is due to come into effect in January 2014. BIS will be working with the devolved administrations to consult on the new map in 2013. The map will be developed in accordance with the European Commission’s revised Regional Aid Guidelines for 2014-2020.
Guidelines on national regional aid for 2007-2013
Further information on regional aid
Rescue and restructuring aid
Guidelines on state aid for rescuing and restructuring firms in difficulty
Research and Development and Innovation (R&D&I)
Community Framework for State Aid For Research and Development and Innovation
Risk capital
Guidelines on State Aid to promote Risk Capital Investments in SMEs
Vertical measures
Sector specific rules
All sector-specific legislation can be found on the following Commission link:
Sector specific rules
audiovisual production
broadcasting
coal
electricity (stranded costs)
postal services
shipbuilding steel
Other measures
Amendment to transparency directive
State aid and broadband guidelines
State aid - Services of General Economic Interest (SGEI)
Complaints about state aid
Complaints by UK industry about alleged unfair aid
If a UK company believes that a competitor is receiving illegal aid then they should complain directly to the Commission on the complaints form. The Commission is obliged under the Procedural Regulation to act on any evidence of potential illegal aid and will therefore take complaints seriously.
Member State or interested party complaints
Any Member State or interested party can challenge a Commission decision in the European Court of Justice. (Article 230 of the EC Treaty).
Member States have an automatic right to bring such cases to the Court, or to intervene in a case before the Court.
Other interested parties, such as companies contesting a Commission decision to approve aid for a competitor, need to show they have a legitimate interest or standing.
The Court has precedent as to when a third party can intervene and any company wishing to challenge a Commission decision could do so directly or if they wish could seek their own legal advice as soon as possible.
To challenge a decision successfully means proving that the Commission infringed an essential procedural requirement or misused its powers in the way it reached a decision. It is not enough merely to disagree with a decision. One has to show that had the Commission followed its own obligation and procedures properly - including properly considering the relevant facts - it could not have reached the decision it did.
A challenge to a decision has to be made within 2 months of Member States or interested parties being notified of the decision. Anyone wishing to challenge a decision can do so by contacting the Commission directly.
Commission or another Member State complaint against a Member State
The Commission or another Member State may also bring a claim to the European Court of Justice that a Member State has failed to fulfil its obligations or to comply properly with a Commission decision.
Article 108(2) allows the Commission or a Member State to refer directly to the ECJ if at the end of the Commission’s investigation, its decision is not being complied with.
Complaints referred by national courts
The European Court of Justice also considers cases referred to it by national courts under Article 234. Member States may submit written observations and may appear at the hearing even if they did not submit written observations.
Article 108(2) allows the Commission or a Member State to refer directly to the ECJ if at the end of the Commission’s investigation, its decision is not being complied with.
The Commission and the Court have the power to fine Member States for not complying with decisions.
Commission complaints about UK aid
The Commission may also receive a complaint, or itself raise a concern about a proposed UK State Aid payment or scheme that it may have heard about through the media. The Commission would then ask the UK for a detailed explanation within a set time. The Commission would be legally within its powers to open an Article 108(2) formal investigation procedure, backed by an injunction to halt any current aid payments, if it was not satisfied with the UK response.
State Aid Branch can advise on the best way to handle Commission complaints.
It is important to fully satisfy the Commission’s enquiries, so that it can put a convincing case to the complainant that no further action need be taken. The complainant may otherwise pursue the matter in the national courts.
Consequences and penalties
The Commission monitors and controls State Aid in the EU by requiring Member States to notify the Commission in advance of proposed State Aid. This gives the Commission the opportunity to approve or refuse to approve the proposed State Aid.
The Procedure Regulation (659/99) defines unlawful aid as unnotified aid.
Under the present procedural rules, the Commission is under the obligation to order the recovery from the beneficiaries of any unlawful aid that is found to be incompatible with the Common Market. This includes repayment with interest to the public authorities.
Application of law
The obligation under Article 108(3) of the Treaty to notify proposed State Aid or changes to existing approved State Aid is directly enforceable in Member States’ courts.
Only the European Court of Justice has competence to review the legality of the Commission’s decisions and actions in controlling State Aid.
National courts uphold the rights of persons in the event of a breach by national authorities of the ban on putting State Aid into effect without Commission approval. The courts must take steps on the question of the validity of decisions and recovery of unlawful aid.
The Commission and the Court have the power to fine Member States for not complying with decisions.
State aid and annual reporting
The European Commission (EC) requires each Member State to provide information about State Aid spend.
Notified and approved state aid
The European Commission (EC) requires each Member State to provide a yearly report on state aid paid out under approved state aid schemes and individually approved state aid.
State Aid Branch will ask aid administrators once a year to provide details of state aid paid under approved state aid schemes.
General Block Exemptions (GBER)
One of the conditions of the general block exemption regulation is to provide an annual report on block exemption schemes. Please make sure that you follow the conditions laid out in the GBER; you must provide a webpage outlining the scheme and make sure that it stays updated for the duration of the scheme. Most schemes have a brief overview with a linked PDF with the full detail required.
State Aid Branch is responsible for compiling the annual report on the UK’s state aid schemes for the Commission.
State Aid Branch will ask aid administrators once a year around spring to provide details of state aid paid under the General Block Exemption regulation.
The Commission can take legal action against the UK if we do not comply with the condition to provide annual reports.
Reports to the World Trade Organisation (WTO) on state aid
State Aid Branch also must provide a detailed report every 2 years around February to the WTO on state aid paid out. Again State Aid Branch will request information from aid administrators.
Service of General Economic Interest (SGEI)
Spending under the SGEI block exemption regulation is subject to separate periodic reporting (every 3 years).
Related documents and links
‘State aid frequently asked questions’
Introduction to the General Block Exemption regulation
'’State Aid guide: guidance for state aid practitioners’
‘State Aid: the basics guide’
Taking account of state aid issues in policy making
Vademecum Community on State Aid Handbook
Universities and Research Organisations on the EC state aid framework for R&D&I: guidance note
How the state aid rules impact upon funding for the delivery of public services of general economic internet (SGEI): general notes
The Financial Transparency (EC Directive) Regulations 2009
EU Commission