The European Commission has approved a £50 billion (EUR 57 billion) “umbrella” UK state aid scheme to support small and medium-sized enterprises and large corporates in the United Kingdom affected by the coronavirus (COVID-19) outbreak. The umbrella scheme was approved on April 6, 2020, under the State Aid Temporary Framework, as amended.
Under the UK Withdrawal Agreement from the European Union, during the transition period to Brexit, EU law continues to apply in the United Kingdom as if it were an EU member state. This includes all EU rules relating to state aid.
Following the approval of two UK state aid schemes to support small and medium-sized enterprises (SMEs) through grants and loan guarantees on March 25, 2020, the UK notified the European Commission of a new £50 billion “umbrella” UK scheme (Umbrella Scheme) to support companies affected by the coronavirus outbreak under the State Aid Temporary Framework, as amended on April 3, 2020. In approving the Umbrella Scheme, the European Commission concluded that the measures are necessary, appropriate, and proportionate to remedy a serious disturbance in the UK economy, in line with Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) and the conditions set out in the State Aid Temporary Framework.
The Umbrella Scheme is a UK-wide national temporary framework for state aid, with an estimated budget of £50 billion, and allows for the provision of aid in the form of:
The Umbrella Scheme is targeted at SMEs as well as large corporations. It allows aid to be granted either directly (by UK authorities at all levels, including central government, devolved governments, local authorities, and other bodies administering schemes involving state resources channeled through their own budgets) or, if it concerns guarantees on loans, through credit institutions and other financial institutions as financial intermediaries.
The scheme foresees a mechanism to ensure that where these programs are channeled through commercial banks, banks pass the advantage of the subsidized guarantee premium on to the companies that need support. Under the State Aid Temporary Framework, member states have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs. The United Kingdom will ensure that the rules for cumulation of aid are respected across all measures under the State Aid Temporary Framework and across all granting authorities.
Even though aid provided to companies under the Umbrella Scheme does not need to be notified to and approved by the European Commission on an individual basis, the European Commission will likely be able to scrutinize such aid measures. For example, this will be the case if the UK government and/or the recipients of the aid have not fully complied with the terms of the Umbrella Scheme (as approved by the European Commission). Companies receiving aid despite not meeting the relevant eligibility criteria, or which misuse the aid they obtain, may face a state aid investigation by the European Commission and they may be required to return the aid to the UK government with interest at a commercial rate. They may also face restrictions on receiving additional aid in the future.
The European Commission said that aid may be granted under the Umbrella Scheme only to undertakings that were not in difficulty on December 31, 2019, and will be provided only until the end of 2020.
Under EU state aid rules, a potential confirmation by the UK government (or any public authority) that a given measure is free of state aid, or that it constitutes permissible state aid, does not absolve the recipient company of any liability under EU state aid rules. Accordingly, to mitigate the risk of a potential state aid investigation and of a potential order for the recovery of any illegal or misused aid, companies should independently verify that the financial support they are applying for (including its intended use) is in line with EU state aid rules.
The State Aid Temporary Framework complements the many other possibilities already available to member states to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU state aid rules.[1] On March 13, 2020, the European Commission adopted a communication on a coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, member states can make generally applicable changes in favor of businesses (e.g. deferring taxes, or subsidizing short-time work across all sectors), which fall outside state aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak, and provide investment aid to eligible companies in order to accelerate the development and production of vaccines, medicines, and other products used in the fight against COVID-19.
The State Aid Temporary Framework will be in place until the end of December 2020, although the European Commission will assess before that date if it needs to be extended.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
London
Joanna Christoforou
Kate Habershon
Frances Murphy
Omar Shah
Leonidas Theodosiou
Brussels
Christina Renner
Izzet Sinan
Frankfurt
Michael Masling
[1] The UK government has already introduced a number of tax measures in response to the COVID-19 crisis, e.g. it has permitted UK businesses to defer VAT payments otherwise due between March 20, 2020, and June 30, 2020, together with a holiday from business rates for businesses in the retail, hospitality, and leisure sectors and it has also announced “£330 billion of guarantees,” which is divided into two schemes: the COVID Corporate Financing Facility and the Coronavirus Business Interruption Loan Scheme.