Reform of the State aid rules

1. Reform of the State aid rules Trevor RaggattState Aid BranchDept for Business, Enterprise and Regulatory Reform

2. Overall responsibility for non-agriculture and non-transport State aid policy. Advice on non-agriculture and non-transport State aid cases. Single point of contact for wider UK Government (esp for contacts with DG Competition). Similar units in Transport and Agriculture Departments Work closely with Scottish, Welsh and Northern Irish State aid units

3. Advice to Government officials on designing policy and aid schemes that: Contain no aid Fit block exemptions or de minimis. Advice and cooperation on preparing notifications. Website advice (http://www.dti.gov.uk/bbf/state-aid/) and State aid guide for practitioners. In-depth courses/seminars/network meetings for regional contacts/devolved administrations. Awareness raising/training courses etc. Already mentioned our role in assisting officials with design, preparation and notification of their schemes � steering towards horizontal or no-aid solutions wherever possible. DTI State aid branch also have a number of other activities aimed at raising awareness of State aid issues and increasing understanding. Better understanding should lead to less abuse and better use of State aid where appropriateAlready mentioned our role in assisting officials with design, preparation and notification of their schemes � steering towards horizontal or no-aid solutions wherever possible. DTI State aid branch also have a number of other activities aimed at raising awareness of State aid issues and increasing understanding. Better understanding should lead to less abuse and better use of State aid where appropriate

4. BERR State Aid Branch Eight staff: 1 Director � State Aid (and EU competition and consumer policy) 4 x Assistant Directors (policy, advice and case-work) 2 x Case Managers (case-work, advice and policy support) 1 x Admin and Systems manager (including SANI, data collection and management). Resides in Consumer and Competition Policy Directorate of Department Trade and IndustryResides in Consumer and Competition Policy Directorate of Department Trade and Industry

5. UK State aid networks BERR State Aid Branch works closely with: UK Permanent Representation Other Government Departments Devolved administration State Aid units Officials in Regional Development Agencies (esp. State Aid officials). Other Government authorities�

6. Reform of the State Aid Rules The State Aid Action Plan 2005-2009 Launched in summer 2005 with a 4 year programme of reform (also referred to as �The Road Map�) Stated aims� To bring about �less and better targeted state aid� (State aid conclusions in the �Lisbon Agenda�) Update guidelines and frameworks Simplify & consolidate BERs into single regulation Introduce a �refined economic approach� into consideration of State Aid (e.g. �balancing test�)

7. State Aid Action Plan Reform programme in two phases: Revision of all existing Commission guidelines, frameworks and regulations on State aid � 2005-2008 Reform and streamlining of procedural rules relating to the notification, approval, reporting & monitoring and enforcement of State aid � 2007-2009

8. Progress to date� Framework on Services of General Economic Interest (SGEI) & SGEI block exemption New guidelines on regional aid & regional aid block exemption New guidelines on risk capital to SMEs New framework on aid for R&D & innovation New regulation on de minimis aid [�200,000] Draft de minimis regulation in fisheries [�30,000] Revised guidelines on aid to agriculture New block exemption for SMEs in agricultural production

9. Main remaining SA instruments: General �super� block exemption First draft published May 2007, second draft published September 2007, implementation planned mid 2008 Guidelines for Environmental Protection First draft published May 2007, second draft expected soon, implementation planned for mid 2008 Film aid guidelines No proposals yet. Expected 2008? Notice on State Guarantees Draft published summer 2007, implementation mid 2008?

10. Procedural reform: Commission looking at a range of different options for progress on procedural reform: Best practice guidelines (Commission & Member States) & changes not needing legislation: Slimmed down timetables/procedures, complaints, flexibility, transparency State aid Networks Amendment of procedural regulations Role of national courts re State Aid

11. Procedural reform (cont): First consultation on Procedural Reform planned for late 2007 Revision of Procedural Regulation to follow in mid 2008? Associated documents: Revision of discount and reference rate calculation methodology � under way Revision of order on recovery orders � under way Assessment of reform and review of revised State aid rules � 2009

12. Ad hoc change to reference rate� Reference and recovery rate 1 Jan 2007 - 31 October 2007 = 5.90% Commission making a revision to the reference rate for the UK because of fluctuations and increases in bank/market interest rates� REFERENCE RATE FROM 1 OCTOBER 2007 = 6.83% Affects, in particular, non-aid loans and loans which constitute State aid.

13. Main changes so far � Regional aid New national regional aid map and ceilings New Regional Aid Guidelines from 1 Jan 2007 Aid expressed in �Gross Grant Equivalent� (i.e. before tax) Enterprise aid (small enterprises): up to �1m in Article 87(3)(c) areas and �2m in 87(3)(a) areas Regional aid block exemption regulation for transparent investment aid schemes

14. Main changes so far � Risk Capital Only applies to funds investing in SMEs (as before) Higher investment ceilings: Increased from �0.5m tranches (�0.75m in (c) areas/�1m in (a) areas) to �1.5 m/year Balancing test for aid that exceeds � 1.5 m/year Guidance on what constitutes a �non-aid� risk capital fund expanded

15. Main changes so far � R&D&I In addition to project-based aid (fundamental & industrial research and experimental development) Technical feasibility studies Industrial property rights costs for SMEs Aid to �young innovative� undertakings Process and organisational innovation in services Innovation advisory services & innovation support services Loan of highly qualified personnel Innovation clusters

16. Main changes� � R&D&I cont. Balancing test for aid exceeding � 7.5/10/20m per project � 5 m for service innovation & innovation clusters

17. Balancing test (c.f. Risk Cap/R&D&I) Three steps: Need to demonstrate that� there is market failure state aid is appropriate, necessary & proportional effect on competition is limited �and provide documentary evidence Likely that similar tests will be included in other guidelines (e.g. environmental guidelines)

18. Draft Super Block Exemption First draft text published April 2007 Second draft published September 2007 BERR circulated copies � response to DTI by 1 October Commission consultation closes 8 October Multilateral meeting with Member States planned in late autumn

19. Format of Block Exemption: Three main sections Common Provisions Specific Provisions For The Different Categories Of Aid Regional aid SME investment and employment aid Aid for environmental protection Aid for consultancy and SME participation in fairs

20. Format (cont.): Specific Provisions For The Different Categories Of Aid (cont.) Aid in the form of risk capital Aid for research and development Training aid Aid for disadvantaged and disabled workers Final Provisions

21. Scope: Included: Regional aid, SME aid, Employment aid, Environmental aid, SME Consultancy and Trade fairs, Risk capital, R&D, Disadvantaged and disabled workers Omissions: Innovation aid, Culture, Media, Heritage, Sport, Tax/Fiscal aids

22. Scope (cont.): QUESTIONS: Is scope sufficient? Should other areas be included? Will revised Block Exemption allow you more scope to approve day-to-day subsidies more easily?

23. Common Provisions New elements: Offer letter must contain express reference to GBER; cite title, Commission ID no and OJEU publication ref of aid Gross aid intensities only Exempted aid must be �transparent� Various individual notification thresholds for different types of aid

24. Common Provisions (cont.) More comprehensive cumulation rules Incentive effect Effectively assumed for Regional and SME aid Verify incentive effect for aid to large firms Exempted aid must be �transparent� Submission of forms on SANI at least 10 days prior to granting aid Full text of aid published on internet Formal 10 year record keeping requirement

25. Common provisions - questions Will requirement for aid transparency hinder use of block exemption in practice? Will cumulation rules cause any particular problems? Will the new test for incentive effect cause practical difficulties? How great a burden will verifying incentive effect impose? Will prior submission of documentation to Commission cause practical difficulties?

26. Specific provisions: Regional aid: largely as with current RAG BE. Eligible aid intensities as Assisted Area map (plus 10% top up for medium-sized or 20% top-up for small forms) SME aid: effectively only operates outside AAs. 10% aid intensity for medium sized and 20% aid intensity for small companies. Schemes not ad-hoc aid Separate intensities for agricultural processing and marketing in both sections

27. Specific provisions: Environmental aid: 6 different types of aid supported Improving on Community Standards: Maximum aid intensity = 25% (SME bonus 10/20%) Early adoption of Community Standards: Maximum aid intensity = 15% Small firms, 10% medium-sized firms

28. Specific provisions (cont.): Investment in energy savings: Maximum aid intensity = 35% Small firms, 10% medium-sized firms Investment in high efficiency cogeneration: Maximum aid intensity = 35% Small firms, 10% medium-sized firms Investment in renewable energy: Maximum aid intensity = 35% Small firms, 10% medium-sized firms

29. Specific provisions (cont.): Environmental aid: Eligible costs � additional environmental costs only, simplified calculation (no need to net off operating benefits, cost savings or additional ancillary production or take account of operating costs during life of investment � not for energy saving measures)

30. Specific provisions (cont.): SME consultancy: Maximum intensity = 50% SME participation in trade fairs: Maximum intensity = 50% Risk Capital: Exemption on basis of various detailed criteria Aid granted in form of profit driven fund, managed on commercial basis Maximum tranche size = �1m per annum

31. Specific provisions (cont.): Restricted up to expansion stage for small firms and medium-sized firms in Assisted Areas. Start-up only for medium-sized firms outside Assisted Areas. At least 70% of measure budget for equity or quasi-equity, duration of investments under scheme limited to 6 years At least 50% private contribution to fund (30% in funds for SMEs in Assisted Areas)

32. Specific provisions (cont.): Aid for R&D: Broadly similar to existing SME BE R&D provisions but with amended definitions, aid intensities and definitions. Extended to larger firms Special rules for R&D in the agricultural sector

33. Specific provisions (cont.): Training aid: Maximum aid intensities: 25% specific training, 60% general training Bonuses: 10% for disabled and disadvantaged workers, 10% for medium-sized firms, 20% for small firms (up to a maximum of 80%)

34. Specific provisions (cont.): Aid for disadvantaged and disabled workers Recruitment of disadvantaged workers: max intensity = 50% of wage costs over 12 months after recruitment Employment of disabled workers (wage subsidies): max intensity = 60% wage costs Additional expenses for disabled workers: Max intensity = 100% of costs (other than wage costs of disabled worker) of adapting premises, adapting equipment or of providing �assistance�

35. GBER consultation responses: Commission text available at: http://ec.europa.eu/comm/competition/state_aid/reform/reform.cfm NB If your authorities have any comments on proposal lease send responses to State Aid Branch in BERR Send to Toks Akinseye toks.akinseye@berr.gsi.gov.uk copied to Trevor Raggatt trevor.raggatt@berr.gsi.gov.uk

36. Monitoring and enforcement Commission set up new section specifically focusing on monitoring and enforcement Looking more closely at application of Block Exemptions and ensuring reporting is carried out properly Random sampling of block exemption compliance Closer scrutiny of certain aids � e.g. training aid to large companies

37. Finding out more information� BERR State Aid Website:http://www.berr.gov.uk/bbf/state-aid/ BERR State Aid Branch: sapu@berr.gsi.gov.uk State Aid Scotland Website:http://www.stateaidscotland.gov.uk/ Scottish Executive State Aid Branch: stateaid@scotland.gsi.gov.uk European Commission, DG Competition:http://ec.europa.eu/comm/competition/index_en.html