State Aid rules and British Steel

British Steel’s collapse highlights the effect of the restrictions or controls, depending on your point of view, on the use of taxpayers’ money imposed by the European State Aid rules.

The State Aid rules prevent the use of public money to favour businesses where that may distort competition and affect trade between EU member states without the prior consent of the European Commission.  There are a number of exemptions to these rules - for example, a number of block exemptions regulations and exceptions for de minimis aid to SMEs.  The Commission has published guidelines on State Aid for rescuing and restructuring non-financial undertakings in difficulty, and it will have been these guidelines that the UK Government would have had in mind when deciding not to support British Steel further. 

The key principles of the guidelines are:

  • Aid to companies undergoing financial difficulties may be granted temporarily for a period of six months (so called “rescue aid”).
  • Beyond this period the aid must either be reimbursed or a restructuring plan must be notified to the Commission for the aid to be approved as “restructuring aid”. The plan must ensure that the long-term viability of a company is restored without further state support, that the distortions of competition induced by the state support are addressed by specific measures, and that the company contributes to the costs of restructuring.
  • Restructuring aid may be granted only once over a period of ten years (the “one time, last time” principle), to prevent companies that are not viable being kept artificially alive through public support.

The Commission has investigated the rescuing of European steel companies before.  The privatisation and sale of one of Poland's major steel producers, Huta Czestochowa, came under Commission investigation following accession by Poland to the EU. The Commission concluded that €4 million of restructuring aid given to the company earlier was illegal and must be recovered. 

The UK has never introduced its own national State Aid rules, and has simply relied on the direct effect of the Treaty on the Functioning of the European Union and underlying EU law and Commission guidelines.  So it’s not certain what controls on State Aids will continue in the UK after Brexit.  At the moment, the draft State Aid (EU Exit) Regulations 2019 will, if adopted, mean essentially that the State Aid rules will continue to apply but will be regulated by the UK’s Competition and Markets Authority rather than the Commission. 

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