05/02/2019
Over the last year, we have seen an increasing need to advise about the application of the rules to local authority regeneration projects, and suspect that this will continue. These typically involve engaging with the private sector to draw down on finance and / or expertise, and obtaining central government “gap” funding. Although the outcome of Brexit (discussed here and here) could reduce the availability of private finance, the need for regeneration will continue to be significant, which means the public sector could be required to increase support in a variety of ways. For example, Homes England appears to be committing funding at a much increased level.
Ensuring compliance with the State aid rules will remain critical to ensure projects start on a sound footing. As ever, the key to dealing with State aid effectively is to do so at a project’s formative stage. This is likely to provide the greatest number of options for ensuring compliance. By way of example, we set out below some of the aid issues that commonly arise in regeneration projects, and the suggested solutions.
The authority as an undertaking
Authorities often obtain government funding to unlock a site’s development, in particular by supporting decontamination, flood alleviation and access works that render development unviable. This can result in the authority exposing itself to the risk of being classified as an undertaking under the rules. However, this can commonly be addressed by ensuring that it acts only as an intermediary for the funding, retaining no benefit for itself (i.e. the pass-through principle).
Funding private sector decontamination works
The authority will often wish to use government grant to fund a developer / landowner to undertake decontamination works. At first glance, these are pure development costs and a clear financial advantage would be provided by doing so. However, article 45 of the General Block Exemption Regulation[1] permits investment aid to undertakings repairing environmental damage by remediating contaminated sites. This is defined as damage to the quality of the soil, surface water or groundwater. Up to €20 million aid can be given for 100% of eligible costs, and as long as the other provisions of the Regulation are met, including the “polluter pays” principle, this could be the most suitable way of complying with the rules at this level.
Funding flood works
The authority may also wish to fund the Environment Agency to implement a flood alleviation scheme. In such circumstances, both are likely to be acting "in their capacity as public authorities"[2] rather than as undertakings performing economic activity. Furthermore, these will be works to public infrastructure that cannot be commercially exploited. There are therefore good grounds for concluding that the rules will not be breached.
Access roads
The authority will often procure the delivery of road improvements to provide better access to development sites. As with flood works, this is likely to be outside of the aid rules on the basis it is public infrastructure that cannot be commercially exploited. However, there could potentially be indirect aid to specific landowners, for example, if an access road is designed to meet their requirements and serves a single site. Care has to be taken to ensure that this is not the case, and that the developer contributes under a section 106 agreement in line with the authority’s usual arrangements.
Conclusion
These examples show how the rules can be complied with using a variety of approaches. If you are interested in discussing any of them in more detail, please get in touch with a member of our State aid team.
[1] Commission Regulation (651 / 2014 / EU) of 17 June 2014.
[2] C-30/87 Bodson [1988].
