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State Aid Considerations for Local Authorities Providing Coronavirus Assistance

on Friday, 22 May 2020.

A plethora of schemes are available to help businesses continue to trade in response to coronavirus (COVID-19). These are being administered at both central government and local government level.

In managing these schemes, public authorities have a duty to ensure they do not flow down State aid to beneficiaries. We examine how the State aid rules apply in relation to the new series of measures and what steps local authorities should take to check that grants are being paid out in accordance with the State aid rules.

The State aid laws continue to apply to ensure a level playing field across the Member States and the UK. Although the UK is no longer a Member State, it is bound by the EU State aid regime for the transition period, due to end on 31 December 2020. The large sums of money being distributed across the Member States as a result of COVID-19 increase the risk of complaint that money is being unfairly used to benefit particular industries or businesses in certain countries. The EU Commission has powers to investigate Member States for illegal State aid and require that beneficiaries repay any State aid together with interest.

To help Member States, the EU Commission has relaxed the red tape to enable aid to be distributed rapidly to assist the liquidity of business and business continuity.

On 6 April 2020 it approved the individual UK-wide State aid notification by the Department for Business, Energy and Industrial Strategy’s (BEIS) under the EU Temporary Framework to support businesses affected by the coronavirus outbreak.

This so-called 'umbrella' measure means that schemes issued under it will be treated as being pre-cleared for State aid provided that the conditions are met. The benefit of the measure is that it is very flexible and allows aid to be given on top of other State aid allowances and exemptions.

So far, local authorities are receiving funds under the Small Business Grants Fund, the Retail, Hospitality and Leisure Grants Fund and the Local Authorities Discretionary Grant Fund under the umbrella measure. As of 17 May, £9.5 billion has been paid out to over 778,000 businesses under these schemes.

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Firstly, local authorities will need to consider whether businesses will receive any State aid at all. Where for example, business support is being provided to signpost the available grants or to provide webinars on how to apply, such measures are unlikely to meet the State aid tests on the basis that they are non-selective or do not confer an economic advantage.

A grant under the local authority schemes may be treated as permitted aid either under the 'De Minimis' allowance for a business or within the permitted allowances under the umbrella measure. The De Minimis Regulation allows an undertaking to receive up to €200,000 Euro over a three year period from any source, subject to keeping detailed records. Under the 'umbrella' scheme, the maximum amount of aid that can be received in total under the scheme per undertaking is €800,000. This enables an undertaking to preserve its De Minimis allowance for example for future training needs. An undertaking who is also claiming other categories of aid such as consultancy services or business scale up support under the State aid general block exemption can continue to rely upon this exemption, as the State aid measures are generally treated as separate and distinct (note there are special rules for loans and guarantees).

In order to be eligible, beneficiaries must be able to demonstrate there is link between its need for financial support as a result of the COVID-19 pandemic, which should be easily shown, and that it was not prior to January 2020 an undertaking in distress. It will also need to complete a record of all aid received, certify the record is accurate and acknowledge a local authority's entitlement to clawback grant which amount to State aid. We recommend that the record includes not only the value of specific local authority grants but also amounts of De Minimis aid and other COVID-19-related grants and support measures as this will help a local authority identify whether further information will be required to assess the applicant's State aid position.

Local authorities should also be aware of the transparency and reporting obligations under the umbrella measure which require local authorities to:

  • notify BEIS of first use
  • collate monthly data regarding grants made available under the various schemes

The 'umbrella' measure has been widely scoped to allow the UK Government to include additional schemes. Schemes issued under the umbrella measure are valid for aid up until end of December 2020.

For further information, visit the Gov.uk website, or read the BEIS document on the COVID-19 temporary framework for UK public authorities.

If you need specialist legal advice relating to State aid, please contact Stephanie Rickard in our Procurement team on 07384 251 896, or complete the form below.

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