The State aid rules are a fundamental part of the laws which facilitate the creation and development of the EU’s internal ('single') market. Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) provides as follows:
"Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, insofar as it affects trade between Member States, be incompatible with the common market."
The State aid rules are intended to regulate subsidies and to stop public authorities from distorting the markets, by selectively favouring particular businesses, or particular sectors or areas. Although there is a basic prohibition on the provision of State aid by public authorities, the European Commission has a wide discretion (under Article 107(3) TFEU) to approve State aid in certain circumstances (for example to promote the economic development of certain areas or to facilitate the development of certain economic activities or certain economic areas, where the effect on intra EU trade is limited). The State aid rules do not prohibit public authorities from investing public money on terms that would be acceptable to a market investor (the so-called Market Economy Operator Principle). Extensive information about the State aid rules is available on the European Commission’s website.
In practical terms, State aid can be granted in a wide range of circumstances, though subject to strict control by the European Commission (for example relating to the type of aid, the amount of aid and the intensity of aid as a proportion of total project costs). The key legislation covering this is Commission Regulation 651/2014, most commonly referred to as the General Block Exemption Regulation (GBER). GBER sets out the conditions under which state aid can be provided, without notification to or approval by the European Commission. By way of example, GBER makes detailed provision in relation to the following categories of aid:
- regional aid;
- aid to SMEs;
- aid for research, development and innovation;
- training aid; and
- aid for environmental protection.
The Welsh Government has registered a number of schemes under GBER. Of particular significance to Wales are the rules relating to regional investment aid, which confer scope on public authorities to provide aid to support capital investment in assisted areas (including West Wales and the Valleys).
If State aid does not fall within one of the exemptions in GBER, it may have to be notified to the Commission, and then cannot be implemented unless and until the Commission authorises it. There is a variety of frameworks and guidance that set out how the Commission will assess State aid notifications, typically by reference to the type of aid or industry sector concerned.
The consequences of providing State aid that is not authorised either under GBER or directly by the Commission can be serious: public authorities are under a duty to recover unlawful State aid from the beneficiary, with compound interest.