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EU State aid law and the UK: The European Commission adopts new Regional Aid Guidelines

The European Commission has adopted new Regional Aid Guidelines providing preferential EU State aid law cover for awards of public funding that incentivise investment into economically underperforming areas. The new guidelines extend and update the Assisted Areas map and allow increased levels of intervention, write Jonathan Branton and Alexander Rose.

On 19 April 2021, the European Commission adopted new Regional Aid Guidelines to incentivise investment into economically underperforming areas. The new rules come into effect from 1 January 2022 and will last until 31 December 2027. As guidelines, the rules apply to projects seeking approval through the notification process but are likely to be mirrored by provisions in the updated General Block Exemption Regulations. The Regional Aid Guidelines are the first set of State aid rules to be updated following the announcement of the European Green Deal and the European Industrial and Digital Strategies.

Main changes under the new Regional Aid Guidelines

The main changes in the new Regional Aid Guidelines are:

  • Assisted Areas will now cover 48% of the EU population based upon updated data;
  • Member States will have greater flexibility to identify and assign assisted area status (so called "non-predefined Article 107(3)(c) areas") provided certain conditions are satisfied;
  • higher aid intensities may be lawfully awarded to support the European Green Deal and Digital Strategy objectives, as well as bonuses for investment into (i) the outermost regions, (ii) border areas, (iii) Just Transition Areas facing particular transition challenges and (iv) areas experiencing a population loss;
  • regional aid maps for the period 2022-2027 will be subject to a mid-term review in 2023 based upon updated statistics taking account of whether regions have bounced back from the Covid-19 pandemic; and
  • steps have been taken to generally simplify the new Regional Aid Guidelines, including clarifying definitions and terminology. This includes updating the criteria used for balancing the positive impact of the aid against its negative effect on competition and trade.

Increased possibilities to fund Regional Aid projects within EU State aid law

Executive Vice-President Margrethe Vestager who leads DG Competition said: “The new Regional State aid Guidelines adopted today will enable Member States to support the least favoured European regions in catching up and to reduce disparities in terms of economic well-being, income and unemployment… We have also increased possibilities for Member States to support regions facing transition or structural challenges such as depopulation, so that the Guidelines fully contribute to the green and digital transitions while ensuring a level playing field between Member States.”

Application of the new Regional Aid Guidelines to the United Kingdom

Although State aid law has been formallly disapplied in the United Kingdom, the EU State aid rules still apply to European Structural and Investment Fund awards (including ERDF and ESF) made until the closure of the current programmes (expected to be 2023) and measures which are subject to Article 10 of the Northern Ireland Protocol. Therefore public bodies administering public funding in such circumstances and bidders applying for such awards will need to be aware of this change to EU State aid law.  

In regard to Northern Ireland, the Annex to the new Regional Aid Guidelines states: "To ensure continuity in the regional aid map of Northern Ireland in light of the s tructural impact of the withdrawal of the United Kingdom from the European Union, Northern Ireland should exceptionally keep its current coverage (100%)". Therefore the intervention levels in Northern Ireland will remain the same. 

The new Regional Aid Guidelines will also be of interest to the UK's Department for Business, Energy and Industrial Strategy as it designs the new UK Subsidy Control rules. Minister Kwasi Kwarteng will be keenly aware that the European Union is also subject to almost identical obligations under the recently signed Trade and Cooperation Agreement and therefore keen to ensure that businesses in the UK are not subject to more onerous or bureaucratic rules than apply under EU State aid law. Equally, UK businesses will observe what levels of aid per investment are being offered in the EU, in the knowledge that the EU would likely have more difficulty objecting to any subsidies provided in the UK that would be clearly allowable by the EU under its own rules.

Jonathan Branton is a partner and Alexander Rose is a director at DWF Law LLP.