Distinguishing unwise decision-making from lacking capacity
Dec 12 2023
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Although the rain has stopped – at least for the time being, floods are back in the news with the Commons Select Committee on the environment reminding us all that austerity cuts have had an impact on the budget for flood defence activity and seeking to put pressure on the Secretary of State to maintain or improve spending. However, there is always more that can be done and some schemes may be looking for funding elsewhere. Is there scope for grant aid from LEPs to support flood prevention schemes?
There are two broad questions which will need to be asked in connection with any such proposal:
The most obvious route to avoid funding for flood prevention to be characterised as unlawful state aid is ensure that it can properly be regarded as infrastructure expenditure. This will be the case where a grant is made to a landowner, to put in place flood prevention measures which benefit a wide area; it cannot just benefit the recipient of the grant alone if they are in business, as that then becomes aid to a selected undertaking. This can also arise where an undertaking is able to commercially exploit state investment even if there is also a wider public benefit through that investment. The recent case of Leipzig Flughalle illustrated this where building a new runway may have boosted the wider economy and benefited public travellers, but clearly directly benefited the airport operator. Market Investor Principles are unlikely to apply.
If the infrastructure route is not open, as may be the case where the flood prevention is directly aimed at protecting a specific business, then are there other routes to validate a grant? Clearly very small scale works may fall within the De minimis limit of under €200,000 over 3 years ( assuming no other de minimis aid ) but beyond that it is difficult to bring the funding within any of the categories of the General Block Exemption. The new version of the regulation does codify commission decision making on relief from natural disasters including floods, but the focus is on making good the damage caused by the nationally recognised disaster, and the amounts are restricted to difference in value before and after the problem. This could be used to part fund replacement of failed flood prevention works, but this is likely to be of little help in seeking to prevent the flood in the first place. Similarly the environmental protection provisions address the protection of the environment from the activities of the grantee, not the protection of the grantee from the environment!
SME investment aid is also unlikely to apply as it is tied to new development or moving into new products, rather than preservation of the existing production capacity.
The second problem may also arise, particularly for LEPs or other bodies who are administering funds such as the Regional Growth Fund. These funds are restricted in the way that they can be used, and in the case of some RGF schemes may be restricted to de minimis or GBER complaint funding. Care needs to be taken as to using the ' right ' money for the right purpose.
This can be a complex area, and the risks for failure are not just the need to recover the funds from the recipient, but also the potential for civil law claims from competitors who may have been affected.