Reform of the State aid rules

1
Reform of the State aid rules

• Trevor RaggattState Aid BranchDept for
  Business, Enterprise and Regulatory Reform

2
BERR State Aid Branch

• Overall responsibility for non-agriculture and
  non-transport State aid policy.
• Advice on non-agriculture and non-transport State
  aid cases.
• Single point of contact for wider UK Government
  (esp for contacts with DG Competition).
• Similar units in Transport and Agriculture
  Departments
• Work closely with Scottish, Welsh and Northern
  Irish State aid units

3
BERR State Aid Branch activities

• Advice to Government officials on designing
  policy and aid schemes that
• Contain no aid
• Fit block exemptions or de minimis.
• Advice and cooperation on preparing
  notifications.
• Website advice (http//www.dti.gov.uk/bbf/state-ai
  d/) and State aid guide for practitioners.
• In-depth courses/seminars/network meetings for
  regional contacts/devolved administrations.
• Awareness raising/training courses etc.

4
BERR State Aid Branch

• Eight staff
• 1 Director State Aid (and EU competition and
  consumer policy)
• 4 x Assistant Directors (policy, advice and
  case-work)
• 2 x Case Managers (case-work, advice and policy
  support)
• 1 x Admin and Systems manager (including SANI,
  data collection and management).

5
UK State aid networks

• BERR State Aid Branch works closely with
• UK Permanent Representation
• Other Government Departments
• Devolved administration State Aid units
• Officials in Regional Development Agencies (esp.
  State Aid officials).
• Other Government authorities

6
Reform of the State Aid Rules

• The State Aid Action Plan 2005-2009
• Launched in summer 2005 with a 4 year programme
  of reform (also referred to as The Road Map)
• Stated aims
• To bring about less and better targeted state
  aid (State aid conclusions in the Lisbon
  Agenda)
• Update guidelines and frameworks
• Simplify consolidate BERs into single
  regulation
• Introduce a refined economic approach into
  consideration of State Aid (e.g. balancing test)

7
State Aid Action Plan

• Reform programme in two phases
• Revision of all existing Commission guidelines,
  frameworks and regulations on State aid
  2005-2008
• Reform and streamlining of procedural rules
  relating to the notification, approval, reporting
  monitoring and enforcement of State aid
  2007-2009

8
Progress to date

• Framework on Services of General Economic
  Interest (SGEI) SGEI block exemption
• New guidelines on regional aid regional aid
  block exemption
• New guidelines on risk capital to SMEs
• New framework on aid for RD innovation
• New regulation on de minimis aid 200,000
• Draft de minimis regulation in fisheries
  30,000
• Revised guidelines on aid to agriculture
• New block exemption for SMEs in agricultural
  production

9
Main remaining SA instruments

• General super block exemption
• First draft published May 2007, second draft
  published September 2007, implementation planned
  mid 2008
• Guidelines for Environmental Protection
• First draft published May 2007, second draft
  expected soon, implementation planned for mid
  2008
• Film aid guidelines
• No proposals yet. Expected 2008?
• Notice on State Guarantees
• Draft published summer 2007, implementation mid
  2008?

10
Procedural reform

• Commission looking at a range of different
  options for progress on procedural reform
• Best practice guidelines (Commission Member
  States) changes not needing legislation
• Slimmed down timetables/procedures, complaints,
  flexibility, transparency
• State aid Networks
• Amendment of procedural regulations
• Role of national courts re State Aid

11
Procedural reform (cont)

• First consultation on Procedural Reform planned
  for late 2007
• Revision of Procedural Regulation to follow in
  mid 2008?
• Associated documents
• Revision of discount and reference rate
  calculation methodology under way
• Revision of order on recovery orders under way
• Assessment of reform and review of revised State
  aid rules 2009

12
Ad hoc change to reference rate

• Reference and recovery rate 1 Jan 2007 - 31
  October 2007 5.90
• Commission making a revision to the reference
  rate for the UK because of fluctuations and
  increases in bank/market interest rates
• REFERENCE RATE FROM 1 OCTOBER 2007 6.83
• Affects, in particular, non-aid loans and loans
  which constitute State aid.

.

.
BREAKING NEWS
13
Main changes so far Regional aid

• New national regional aid map and ceilings
• New Regional Aid Guidelines from 1 Jan 2007
• Aid expressed in Gross Grant Equivalent (i.e.
  before tax)
• Enterprise aid (small enterprises) up to 1m in
  Article 87(3)(c) areas and 2m in 87(3)(a) areas
• Regional aid block exemption regulation for
  transparent investment aid schemes

14
Main changes so far Risk Capital

• Only applies to funds investing in SMEs (as
  before)
• Higher investment ceilings
• Increased from 0.5m tranches (0.75m in (c)
  areas/1m in (a) areas) to 1.5 m/year
• Balancing test for aid that exceeds 1.5 m/year
• Guidance on what constitutes a non-aid risk
  capital fund expanded

15
Main changes so far RDI

• In addition to project-based aid (fundamental
  industrial research and experimental development)
• Technical feasibility studies
• Industrial property rights costs for SMEs
• Aid to young innovative undertakings
• Process and organisational innovation in services
• Innovation advisory services innovation support
  services
• Loan of highly qualified personnel
• Innovation clusters

16
Main changes RDI cont.

• Balancing test for aid exceeding
• 7.5/10/20m per project
• 5 m for service innovation innovation clusters

17
Balancing test (c.f. Risk Cap/RDI)

• Three steps
• Need to demonstrate that
• there is market failure
• state aid is appropriate, necessary
  proportional
• effect on competition is limited
• and provide documentary evidence
• Likely that similar tests will be included in
  other guidelines (e.g. environmental guidelines)

18
Draft Super Block Exemption

• First draft text published April 2007
• Second draft published September 2007
• BERR circulated copies response to DTI by 1
  October
• Commission consultation closes 8 October
• Multilateral meeting with Member States planned
  in late autumn

19
Format of Block Exemption

• Three main sections
• Common Provisions
• Specific Provisions For The Different Categories
  Of Aid
• Regional aid
• SME investment and employment aid
• Aid for environmental protection
• Aid for consultancy and SME participation in fairs

20
Format (cont.)

• Specific Provisions For The Different Categories
  Of Aid (cont.)
• Aid in the form of risk capital
• Aid for research and development
• Training aid
• Aid for disadvantaged and disabled workers
• Final Provisions

21
Scope

• Included Regional aid, SME aid, Employment aid,
  Environmental aid, SME Consultancy and Trade
  fairs, Risk capital, RD, Disadvantaged and
  disabled workers
• Omissions
• Innovation aid,
• Culture, Media, Heritage, Sport,
• Tax/Fiscal aids

22
Scope (cont.)

• QUESTIONS
• Is scope sufficient?
• Should other areas be included?
• Will revised Block Exemption allow you more scope
  to approve day-to-day subsidies more easily?

23
Common Provisions

• New elements
• Offer letter must contain express reference to
  GBER cite title, Commission ID no and OJEU
  publication ref of aid
• Gross aid intensities only
• Exempted aid must be transparent
• Various individual notification thresholds for
  different types of aid

24
Common Provisions (cont.)

• More comprehensive cumulation rules
• Incentive effect
• Effectively assumed for Regional and SME aid
• Verify incentive effect for aid to large firms
• Exempted aid must be transparent
• Submission of forms on SANI at least 10 days
  prior to granting aid
• Full text of aid published on internet
• Formal 10 year record keeping requirement

25
Common provisions - questions

• Will requirement for aid transparency hinder use
  of block exemption in practice?
• Will cumulation rules cause any particular
  problems?
• Will the new test for incentive effect cause
  practical difficulties?
• How great a burden will verifying incentive
  effect impose?
• Will prior submission of documentation to
  Commission cause practical difficulties?

26
Specific provisions

• Regional aid largely as with current RAG BE.
  Eligible aid intensities as Assisted Area map
  (plus 10 top up for medium-sized or 20 top-up
  for small forms)
• SME aid effectively only operates outside AAs.
  10 aid intensity for medium sized and 20 aid
  intensity for small companies. Schemes not ad-hoc
  aid
• Separate intensities for agricultural processing
  and marketing in both sections

27
Specific provisions

• Environmental aid 6 different types of aid
  supported
• Improving on Community Standards Maximum aid
  intensity 25 (SME bonus 10/20)
• Early adoption of Community Standards Maximum
  aid intensity 15 Small firms, 10 medium-sized
  firms

28
Specific provisions (cont.)

• Investment in energy savings Maximum aid
  intensity 35 Small firms, 10 medium-sized
  firms
• Investment in high efficiency cogeneration
  Maximum aid intensity 35 Small firms, 10
  medium-sized firms
• Investment in renewable energy Maximum aid
  intensity 35 Small firms, 10 medium-sized
  firms

29
Specific provisions (cont.)

• Environmental aid Eligible costs additional
  environmental costs only, simplified calculation
  (no need to net off operating benefits, cost
  savings or additional ancillary production or
  take account of operating costs during life of
  investment not for energy saving measures)

30
Specific provisions (cont.)

• SME consultancy Maximum intensity 50
• SME participation in trade fairs Maximum
  intensity 50
• Risk Capital Exemption on basis of various
  detailed criteria
• Aid granted in form of profit driven fund,
  managed on commercial basis
• Maximum tranche size 1m per annum

31
Specific provisions (cont.)

• Restricted up to expansion stage for small firms
  and medium-sized firms in Assisted Areas.
  Start-up only for medium-sized firms outside
  Assisted Areas.
• At least 70 of measure budget for equity or
  quasi-equity, duration of investments under
  scheme limited to 6 years
• At least 50 private contribution to fund (30 in
  funds for SMEs in Assisted Areas)

32
Specific provisions (cont.)

• Aid for RD
• Broadly similar to existing SME BE RD provisions
  but with amended definitions, aid intensities and
  definitions. Extended to larger firms
• Special rules for RD in the agricultural sector

33
Specific provisions (cont.)

• Training aid
• Maximum aid intensities 25 specific training,
  60 general training
• Bonuses 10 for disabled and disadvantaged
  workers, 10 for medium-sized firms, 20 for
  small firms (up to a maximum of 80)

34
Specific provisions (cont.)

• Aid for disadvantaged and disabled workers
• Recruitment of disadvantaged workers max
  intensity 50 of wage costs over 12 months
  after recruitment
• Employment of disabled workers (wage subsidies)
  max intensity 60 wage costs
• Additional expenses for disabled workers Max
  intensity 100 of costs (other than wage costs
  of disabled worker) of adapting premises,
  adapting equipment or of providing assistance

35
GBER consultation responses

• Commission text available at
• http//ec.europa.eu/comm/competition/state_aid/ref
  orm/reform.cfm
• NB If your authorities have any comments on
  proposal lease send responses to State Aid Branch
  in BERR
• Send to Toks Akinseye toks.akinseye_at_berr.gsi.gov.u
  k
• copied to Trevor Raggatt trevor.raggatt_at_berr.gsi.g
  ov.uk

36
Monitoring and enforcement

• Commission set up new section specifically
  focusing on monitoring and enforcement
• Looking more closely at application of Block
  Exemptions and ensuring reporting is carried out
  properly
• Random sampling of block exemption compliance
• Closer scrutiny of certain aids e.g. training
  aid to large companies

37
Finding out more information

• BERR State Aid Websitehttp//www.berr.gov.uk/bbf
  /state-aid/
• BERR State Aid Branch sapu_at_berr.gsi.gov.uk
• State Aid Scotland Websitehttp//www.stateaidsco
  tland.gov.uk/
• Scottish Executive State Aid Branch
  stateaid_at_scotland.gsi.gov.uk
• European Commission, DG Competitionhttp//ec.eur
  opa.eu/comm/competition/index_en.html