There has been a 41 per cent increase in the number of state aid approval requests made by the UK Government to the European Commission to 41 in 2014 up from 29 applications in 2013, according to figures from Thomson Reuters. Data provided to the company under the Freedom of Information Act shows that the number of State Aid applications the UK Government has made has risen sharply since 2010, when 13 applications were made.
Government still feels the need to subsidise
Thomson Reuters say that the increased number of applications shows that despite the economic recovery the UK government still feels the need to subsidise certain sectors and regions. 'An increase in the use of State Aid is usually associated with an economy that is struggling, so the consistent increase in applications is something of a surprise given the continued economic recovery in the UK. The UK Government clearly feels that certain sectors need support that cannot be provided wholly from the private sector,' said Leigh Hancher, Of Counsel at Allen & Overy and author of EU State Aids (published by Thomson Reuters).
The government must apply to the European Commission for approval to give financial help to businesses, to ensure the investments do not contravene EU competition rules. The nature of the assistance ranges from loans guarantees to tax incentives.
Energy infrastructure receives the most help
Of the 41 applications for State Aid in 2014 nearly a third (13) related to investment in power generation and the transition towards a low carbon economy. For example, approval was sought and given for the establishment of a ‘Contract for Difference for renewables’ which guarantees prices for electricity generated through low carbon means. Several of the applications relate to high profile individual projects.
• Subsidies in the form of guaranteed electricity prices for five offshore wind farms were approved, with a potential cost to the taxpayer of £9.7 billion.
• The budget for the Green Investment Bank was increased by £800 million to a possible £3.9 billion.
• Approval was recently given to Hinkley Point C Nuclear power station after public disagreements within the European Commission. The total state subsidy could eventually run to £17.6 billion.
Other projects include the Green Bus Fund, which seeks to make Scottish buses more environmentally friendly; and the Mode Shift Revenue Support scheme which aims to increase the volumes of inland rail and canal freight.'Renewable energy is costly to generate, and the upfront investment for major projects can be extremely high. The government has had to offer large potential subsidies to help the transition to a low carbon economy,' said Leigh Hancher.
Financial sector
Eight applications related to assistance to the financial services sector. Thomson Reuters says that following a substantial drop in bank lending since the financial crisis the Government has launched several schemes to increase funding to those parts of the economy that the banking sector is not fully supporting eg:
• The British Business Bank will offer financing and loan guarantees to SMEs with an initial funding level of £550 million.
• The Enterprise Capital Fund offers state top-ups to private investment funds which lend to SMEs. The total amount due to be lent was increased to £300 million.
'So called interested parties – especially competitors – are proving increasingly willing to contest State Aid decisions and EU states have voiced opposition to UK Government programmes and may challenge the Commission's decision to approve state aid for Hinkley in the European Courts. This trend has kept lawyers busy ensuring that these programmes do not cross the line into illegal State Aid and that where programmes are challenged they are properly defended,' said Leigh Hancher.
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