State Aid - Still Relevant?

06/12/2017

We were unsure whether after Brexit public authorities would start to take a more practical approach to State aid and take less external legal advice.  This has not been the case so far, and we have had a range of instructions from local authorities and universities for stand-alone advice as well as supporting larger projects.  There are a few areas that arise more often than others, and two of these are explored below.

 

1. Is it an undertaking?
Although stating the obvious, it is always sensible to start with the basics when considering whether aid may be present.  The four key conditions that must be met for aid to exist are:

  • the assistance must be granted by the State or through State resources;
  • the assistance must favour a certain undertaking / group of undertakings, or the production of certain goods;
  • the assistance must distort or threaten to distort competition; and
  • the assistance must affect trade between Member States or be capable of having an effect on cross-border trade.


It is often clear when State resources are involved, for example, because ERDF grant funding is being provided, but it can be more difficult to decide if a recipient is an undertaking.  Although there is no formal definition of this term, European Court of Justice case law makes it clear that the test is whether an organisation is carrying out economic activity by offering goods or services on a market.

Decisions and guidance from the European Commission also set out what activities may be regarded as non-economic. For example, providing education within the national educational system. In essence, this is because these are activities carried out by or on behalf of the State not for remuneration but to fulfil a public task which is intrinsically part of the State's role. We have advised that this approach can be taken:

  • by a local authority receiving £2.4 million of revolving infrastructure fund grant from a local enterprise partnership to support projects to improve traffic flow and reduce congestion at a  key motorway junction;
  • by a local authority establishing a children's trust and then commissioning services from it following a Secretary of State direction.

 

2. Acting like a market operator?
The market economy operator principle (MEOP) is a commonly used way of ensuring compliance.  Decisions by the courts and the European Commission confirm that there will be no advantage if a transaction is in line with normal market conditions.   There are different variations of the MEOP depending on the particular facts, for example, the market economy investor principle, the private creditor test and the private vendor test.  We have recently advised about its use in the following cases:

  • restructuring the arrangements for occupation of a local authority's sports stadium by a professional football club;
  • the terms of a proposed unsecured loan by a local authority to its wholly owned property development vehicle;
  • the purchase of agricultural land by a local authority at above market value for a project to develop a new industrial estate.


If you are interested in discussing any State aid issues you may have to see if we can assist, please get in touch with a member of our State aid team.

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