The European Commission has considerable powers to monitor, control and restrict the forms and levels of aid given by all Member States to undertakings. The objective of State Aid control is to ensure that government interventions do not distort competition and intra-community trade. In this respect, State Aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities.
The State Aid rules apply to aid granted by the State or through State resources and include any private body established or appointed by the State to administer aid (eg. BRE administering the Community Sustainable Energy Programme on behalf of the BIG Lottery Fund).
Grant awards under the Community Sustainable Energy Programme cannot be made to any organisation or public body which falls within the concept of an ‘undertaking', defined by Article 87(1) EC Treaty as any entity engaged in an economic activity, regardless of the legal status of the entity or the way it is funded. An activity can be regarded as ‘economic' even if it is not profitable, or if it lacks an economic purpose provided that it is carrying on some commercial activity.
Article 87(1) sets out criteria, all of which must be met for a State Aid to be present:
- The grant favours certain undertakings or the production of certain goods;
- The grant is provided through State resources;
- The grant distorts or threatens to distort competition;
- The grant affects trade between Member States.
If it is absolutely certain that one or more of these conditions is NOT met, then your organisation is not affected by State Aid rules.
Organisations not covered by State Aid
It is impossible to provide a categorical definition of this because each organisation will have to assess whether it is an undertaking. However, it can be stated that an undertaking is an organisation or individual that carries on an economic activity.
The following types of organisations will be undertakings for the purpose of the State Aid rules:
- Sole traders;
- Partnerships running a business;
- Companies running a business.
However, it is likely that the payment of grants to organisations and public bodies which carry out the following functions and activities will NOT amount to State Aid:
a. Organisations and public bodies which administer matters which are intrinsically prerogatives of the State (such as ensuring internal and external security, the administration of justice, the conduct of foreign relations and other exercises of official authority - Police Authorities & Government Departments);
b. Organisations and public bodies which provide services where the State is not seeking to engage in gainful activity but is fulfilling its duty towards its own population in the social, cultural and educational fields (such as national education - Schools, NHS, GP surgeries & Local Authorities);
c. Organisations and public bodies which provide services/schemes based on the principle of solidarity, which are non-profit-making and where the benefits paid are not proportional to the amount of the compulsory contributions (such as organisations charged with the management of State-imposed compulsory basic social security schemes);
d. Organisations and public bodies which perform largely social functions, are not profit-oriented and are not meant to engage in industrial or commercial activity (such as the non-economic activities of trade unions, political parties, churches and religious societies, consumer associations, learned societies, charities as well as relief and aid organisations). Please note that whenever such organisations, in performing a general interest task, engages in economic activities then the State Aid rules can apply.
The examples below provide guidance on the way in which certain types of organisation are likely to be classified. Please note that these examples are illustrations only and in each case you will need to assess your organisation's activities to determine whether your organisation is an undertaking.
A community group owns and manages a community hall. The community group rents the hall out to local clubs and charges a nominal fee to cover electricity costs. The community group also arranges various fundraising events such as jumble sales and sponsored walks to raise funds for the hall. The community group does not raise funds in any other way. The community group is not an undertaking.
A charity is set up to protect local wildlife. The charity raises funds through donations and by selling gifts through a mail order catalogue. All the profits raised by sale of goods through the catalogue are used to protect local wildlife. The charity is an undertaking because it carries on commercial activities by selling goods through the catalogue.
Frequently Asked Questions
Is funding to universities treated as aid?
Not normally: the funding of universities to provide teaching to students is not deemed State Aid. Neither the universities nor the students (individuals) are considered to be "undertakings". However, where universities enter into collaboration with firms, there may be State Aid present. There will be no State Aid where the firms pay a commercial fee for the use of university facilities or where the results of the collaboration are made available to all-comers, but otherwise, there is a danger of State Aid being present.
Why must we comply with the State Aid rules?
The State Aid rules work to create fair competition for UK companies in Europe. Application of the rules means that competitors in other EU Member States cannot receive unlawful State subsidies which distort competition. Unauthorised State Aid is illegal. These are the consequences for giving such aid:
- aid payments can be suspended;
- firms may have to repay the State with interest;
- policies may have to be altered;
- legislation may need to be amended;
- a recipient could be sued by a competitor for damages.
I am still unsure about my organisation's status with regard to State Aid, where can I go for further advice?
See www.berr.gov.uk/bbf/state-aid/advice/index.html for further details.
NB. If an organisation contravenes State Aid regulations, the Community Sustainable Energy Programme funded organisation will be responsible, not the Big Lottery Fund or BRE.
Last update 7th April 2008