Legal base	—
Document originated	7 December 2009
Deposited in Parliament	14 December 2009
Department	Business, Innovation and Skills
Basis of consideration	EM of 6 January 2010
Previous Committee Report	None
To be discussed in Council	No date set
Committee's assessment	Politically important
Committee's decision	Cleared

Background

3.1  The Commission reports twice yearly on state aid and state aid issues, the main aim of recent reports ("scoreboards") having been to consider to what extent Member States have responded to the Lisbon Strategy, particularly the specific commitments agreed at the Stockholm European Council in 2001 to show a downward trend in the level of state aid relative to Gross Domestic Product (GDP) while redirecting aid from specific sectors to "horizontal" objectives, such as research and innovation. This latest update focuses on the state aid situation in the twenty-seven Member States for the year 2008 together with the underlying trends, and it also looks at the state aids related to the financial crisis, the steps taken to simplify the state aid rules, and their enforcement.

The current document

State aid in 2008

3.2  The scoreboard reports that in 2008 the total of state aid granted by Member States was €279.6 billion, with financial aid measures accounting for €212.2 billion, and other aid around €67.4 billion. In the latter case, five Member States[14] accounted for 60% of the total aid (€40.5 billion), with 78% of aid going to industry and services, 4% to the coal industry, and the balance being shared between agriculture (17.5%), fisheries (0.4%) and transport (3.6%).

Trends and Patterns of state aid in the Member States

3.3  The report observes that, from a long-term perspective, overall aid in the 1980s was around 2% of Gross Domestic Product (GDP), falling to just below 1% in the 1990s, and to around 0.6% in the years 2003 to 2007, with the fall being particularly pronounced in the newest Member States. However, due to the financial crisis, the level rose to more than 2% in 2008, though expenditure on other aids remained similar to that in recent years, with Member States also continuing to direct a high level towards horizontal objectives, notably regional development, environmental protection, research and development, and employment, which accounted for some 88% of aid to industry and services (€46.3 billion) in 2008, compared with only 50% in the mid 1990s. The remaining 12% (€6.5 billion)aid was for structural development, with non-crisis rescue and restructuring aid amounting to about €557 million, compared with €872 million in 2006-2008.

State aid related to the Financial Crisis

3.4  The report notes that in October 2008 the Commission published a Communication on how Member States could best support financial institutions in the current financial crisis whilst respecting EU state aid rules, and that it provided in the spring 2009 scoreboard a detailed overview regarding state aid in the context of the financial and economic crisis.[15] It adds that, between October 2008 and October 2009, the Commission approved 73 crisis measures (32 schemes and 41 individual cases), and that the total crisis support made available by Member State and approved by the Commission in 2008 amounted to €3,361 billion, though the nominal amount of crisis support actually implemented that year was €958 billion. It also points out that the state aid element of this amount was significantly lower, notably because the aid element of state guarantees normally constitutes only a small fraction of the guaranteed amounts and that real budgetary expenditure materialises only when a state guarantee is actually drawn upon. More recently, the Commission approved further rescue and stabilisation measures from January to March 2009, amounting to €96 billion.

Simplification of state aid rules

3.5  The report recalls that in June 2005 the Commission launched a review of almost all the state aid rules and procedures, based on the principles of less and better targeted state aid; a refined economic approach; more effective procedures, better enforcement, higher predictability, and enhanced transparency; and a shared responsibility between the Commission and Member States. As a result, it introduced substantial changes to its state aid controls to make procedures and decision-making faster and more efficient, the new arrangements being based on a "3-stream system" — block (and de minimis) exemptions, standard assessments, and detailed assessments. However, between 2007 and mid 2009, a detailed assessment was carried out in only 25 out of 177 of research, development and innovation cases and in only 10 out of 49 of risk capital cases.

3.6  The Commission subsequently introduced in September 2009 a simplified procedure which allows compatible aid to be approved within an accelerated time period of one month, based on a complete notification from the Member State. Also, aid measures can increasingly be block exempted, meaning that prior approval from the Commission is not required, and in 2008 66% of measures were dealt with in this way, 25% in schemes subject to notification by the Commission, and 5% under individual aid measures. In terms of aid volumes (excluding crisis measures), around 19% (or €10 billion) of aid was granted through block exemptions; 76% (or €40 billion) under schemes, and 5% (or €2.5 billion) as individual aid.

Enforcing the state aid rules

3.7  A state aid measure is considered to be unlawful under Article 88(3) of the EC Treaty (now Article 108(3) TFEU) if Member States implement it before they have received approval from the Commission. The scoreboard reports further progress in the recovery of illegal and incompatible aid. Thus, at the end of June 2009, €9.4 billion has been recovered compared with €2.3 billion in December 2004, whilst, at the end of June 2009, 9% of unlawful aid was still outstanding compared with 75% at the end of 2004. The report also notes that the Commission adopted in April 2009 a new notice on the Enforcement of state Aid Law by National Courts, which has two main objectives — to give clear guidance to national courts and to potential claimants on the different issues which can arise in the context of domestic state aid litigation, and to intensify the Commission's cooperation with national courts in individual cases.

The Government's view

3.8  In his Explanatory Memorandum of 6 January 2010, the Minister for Business, Innovation and Skills (Pat McFadden) says that there are no direct policy implications from this document, which is intended to increase transparency and to emphasise the need for Member States to continue their efforts in reduce the overall level of state aid as a percentage of GDP and to ensure that aid is better targeted. He adds that, on the broader state aid reform issues, the Government strongly supports an effective state aid regime, and is committed to the aim agreed at the Lisbon and Barcelona European Councils to reduce state aid and to redirect it towards broad policy objectives, rather than supporting individual companies. As the Commission continues to review the effectiveness of its rules and procedures, the UK will continue to engage with it positively to help ensure the delivery of its policy goals, especially taking into account current economic instability.

Conclusion

3.9  In clearing this document, we are drawing it — like previous scoreboards — to the attention of the House as a useful summary as regards state aid policy.

15   (30548) 8812/09: see HC 19-xvii (2008-09), chapter 14 (3 June 2009). Back