State Aids

The European Union's state aid rules govern the way that public (state) expenditure is used to support certain types of economic activity within the single European market. The state aid rules cover a wider range of activities, including amongst others regional aid targeted at the regions lagging behind, aid to SMEs, aid for environmental actions, aid to R&D, aid to training and employment initiatives, aid to sectors undergoing restructuring and public support to services of general interest.
Where a public body such as a local authority gives aid to an economic enterprise or business it must ensure that there is a legal basis for the awarding of this aid, otherwise the aid is considered to be illegal and the public body can be compelled (by law) to reclaim the aid it has given. This area is therefore of particular importance to all public bodies (local, regional and national) that give aid to enterprises/businesses.

The European Union has as one of its core aims the creation of a single European market, based on the principles of an open market economy, with the free movement of people, goods and services across the territory. In this context state aid is generally viewed as having the potential to "distort" the operation of the free market, where it gives unfair advantages to the beneficiaries of aid. There is thus a general predisposition against state aid. However, there is also a general recognition that market failures exist across the EU, and where this is the case, the use of state aid can be justified to rectify/correct these failures.

Articles 86 to 89 of the Treaty of the European Union sets out the broad principles governing state aid, including criteria for determining where aid given by public authorities falls within the scope of the Treaty, and the types of state aid that are permitted and those that are forbidden by the Treaty. The Treaty also gives the European Commission the sole powers of policing and enforcing the state aid rules, and requires all proposed state aid to be notified to the Commission before it is awarded (a process that can take anything from 3 to 18 months, and sometimes longer), so that the Commission can make an assessment to determine whether or not the aid can be granted.

As part of its policing role, the Commission has developed a series of regulations, frameworks and guidelines to clarify the conditions under which certain types of aid can be given. These cover regional aid, aid to rescue industries in difficulty, environmental aid, R&D aid, sector aid (e.g. to transport, mining, agriculture, steel industries), aid to SMEs and other forms of horizontal aid such as training and employment aid. In addition to this, the Commission has introduced a number of "block exemptions", which remove the need for the aid to go through the notification procedure. Currently there are block exemptions for de minimis, SME, employment, training, and R&D aid to SMEs.

The Commission is currently carrying out a major reform of the state aid regime, which will see the various regulations, frameworks and guidelines revised. Part of this reform is the introduction of new procedures to simplify and streamline the regulatory framework, the implementation and monitoring procedures, and to strengthen enforcement of the rules.