State aid and funding for community transport

A recent European Commission decisionabout alleged State aid in the form of grants from local authorities to community transport organisations (CTOs) is useful reading for those seeking to rely on the exemption for funding for services of general economic interest. Edward Reynolds, Associate at Bevan Brittan LLP, summarises the case and what may be learnt from it.

07/09/2015

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David Owens

Partner

A recent European Commission decision (see here) about alleged State aid in the form of grants from local authorities to community transport organisations (CTOs) is useful reading for those seeking to rely on the exemption for funding for services of general economic interest.  Edward Reynolds summarises the case and what may be learnt from it.

The complaint

There has been tension for a number of years between private and voluntary sector providers of transport services.  This has stemmed mainly from a perception that voluntary sector providers have benefitted from grants not available to the private sector, and that these have allowed CTOs to submit more competitive bids for, and so win more, local authority contracts than would otherwise be the case. 

In this case, the complainant was a minibus and private hire firm, which in 2012 alleged unlawful aid had been provided by Nottinghamshire and Derbyshire County Councils to a CTO that tendered successfully for home-to-school transport services.  The main complaint was that the latter had been able to offer lower prices as a result of cross-subsidies from local authority grant funding for other services.

The decision

The Commission divided the alleged aid into two categories.  Under the first, grants by Nottinghamshire County Council were found not be constitute aid on the basis that they fell below the €500,000 threshold contained in Regulation 360/2012 of 25 April 2012 for de minimis aid for services of general economic interest.  It is not clear from the decision whether this was by luck or design on the part of the authority.

Under the second category, grants by Derbyshire County Council were initially found to be aid.  However, the Commission ultimately concluded that the aid was permissible aid under Article 93 (a specific transport provision), notwithstanding the fact that it fell outside Regulation 1370 / 2007 of 23 October 2007 on public passenger transport services.

The lessons

It took well over three years for the complaint to be decided, which means significant time and expense is likely to have been incurred by all the parties involved.  The decision confirms, as you might expect, that the Commission does not look favourably on those who give aid in breach of the standstill obligation (see its Conclusion on page 14).  The following points can be taken away:

  1. if funding is being given to third parties delivering services of general economic interest, be clear about the amounts provided, whether this falls below the de minimis threshold and what other obligations must be complied with under the regulation.  This will enable authorities to produce a reliable audit trail that can be used to rebut any suggestion of unlawful aid;
  2. if funding is likely to exceed the threshold, it may be possible to fit it within Regulation 1370/2007, or to base it on the Altmark judgment* (this was successfully relied on in a case last year**, see here);
  3. if relying on Altmark, ensure that you (1) have a funding agreement, and (2) that it meets the criteria in that case, for example, over defining clearly the public service, the level of funding and the provisions for ensuring no overcompensation.  Ideally, you will have selected the recipient by way of competitive tender, failing which it would be necessary to benchmark against similar organisations the level of the costs that are being funded.  It will also be critical to impose an obligation on recipient to have separate accounting procedures for any other services it may provide, and not to use assets purchased with grant funds to compete in competitive tenders for authority contracts.  Both measures will reduce the chance of cross subsidy taking place;
  4. take into account the new guidance (see here) issued by the Department of Transport in response to this complaint; and
  5. bearing in mind the disquiet voiced by the Commission over compliance with the standstill period, ensure that State aid is dealt with early enough to allow a compliant way to be found, and so avoid pressure to carry on regardless of any doubt there may be.

If you would like to discuss this or any other State aid query, please contact a member of our State Aid team.

* Case C-280/00, Altmark Trans GmbH und Regierungspräsidium Magdeburg v Nahverkehrsgesellschaft Altmark
GmbH, [2003] ECR I-7747.
** State aid SA.34155 (2013/N) (ex 2011/PN) – Germany,Regional law on the compensation of school bus transport in the LandRhineland-Palatinate

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