New EU state aid rules could provide a timely boost for local economies. They open up more opportunities for public bodies to stimulate economic growth
The UK government’s announcement of the first wave of Growth Deals represents a welcome boost to local economies across England. The agreement will see an initial £6 billion of funding made available for investment in growth projects including new housing developments, transport infrastructure and training facilities.
The announcement coincides with another important intervention from Brussels. The European Commission’s latest state aid reforms may not have piqued the national interest in quite the same way, however they still have the potential to unlock local economic opportunities.
Often criticised for tying up public investment initiatives in red tape, the Commission deserves some praise for its considerably more generous recent approach towards state aid rules, allowing more projects access to state funding with increased legal certainty and without regulatory interference.
The Commission’s new General Block Exemption Regulation (GBER), which came into force at the start of the month, goes much further than merely simplifying and updating the previous exemption it replaces. Initially focused on regional investment aid, research and development, environment and training, its scope has been significantly expanded to encompass a much wider variety of investment activities. According to official estimates, up to 90 per cent of aid provided within the EU could now fall within the scope of the GBER and will not require formal approval from the Commission.
One of the most notable changes for a number of local authorities will be the 2014-2020 regional aid map. A greater number of areas will now be eligible for regional investment aid, however in most cases this will be at a slightly lower aid limit of 10%, down from 15% previously. Overall, more public authorities will face fewer regulatory hurdles when developing new projects to support investment and job creation.
Importantly, public authorities can also take advantage of new, exciting possibilities for aid spending opened up by the reforms. Amongst the stand-out additions are allowances for the setting up and operation of innovation clusters and for aid to set up local business infrastructures such as SME incubators and other office spaces and support for small and medium sized businesses.
Under the new rules up to €100m of public money can also be allocated to culture and heritage conservation projects, while up to €15m of aid for sport and recreational infrastructure such as stadia and multi-purpose venues is also permitted.
The GBER also includes further support for R&D initiatives. Maximum available aid amounts have been doubled – experimental development funding is now capped at €15m and 25% of total costs, for example. And while the old rules only allowed aid for research projects and not the supporting infrastructure (such as new R&D centres), the latter are now eligible for aid of up to 50% of investment costs to a maximum of €20m.
Though it has previously been possible to secure funding in these areas, doing so meant entering the lengthy process of seeking Commission approval on an individual project basis, or having to use other cumbersome methods, sometimes with less legal security. While stringent transparency and accountability requirements have been imposed to protect the new system from abuse, overall it should provide much greater legal certainty for public bodies and facilitate quicker implementation of new investment projects.
These reforms come at a crucial time for many central and local authorities balancing delivery of local economic growth with the need to make more efficient use of resources. However, new support is arriving both at the central and local government levels, through Round 6 of the UK Government’s Regional Growth Fund and Birmingham City Council’s Advanced Manufacturing Supply Chain Initiative (AMSCI 2014), to take just two examples.
Though far from a ‘cure-all’, state aid policy has also taken a step in the right direction, one that could help realise the full value of these types of funding opportunities and benefit local communities up and down the country as a result. For public bodies and businesses that have had negative experiences with state aid in past, now might be the right time to reassess your plans.
Jonathan Branton is a partner at law firm DWF and head of its EU and competition practice
