State aid rules to be relaxed

In the ordinary course of business, any financial aid from the UK government, or other organisations using public resources, would either need approval from the European Commission, or would need to navigate a complex set of rules to locate an appropriate exemption that may allow grant funding or other subsidised support to be received.

As has become rapidly clear, we are not in a position where business can continue as usual and so the European Commission has adopted a new Temporary Framework which is expected to relax the rules on providing state aid to businesses. Its aim is to allow Member States of the European Union to minimise permanent damage to the economy and seek to support sectors that will be particularly hard hit by the COVID-19 outbreak, such as aviation.

The new Temporary Framework includes the ability for Member States to provide the following types of aid:

(i) direct grants, selective tax advantages and advance payments up to €800,000 to a company;
(ii) give subsidised State guarantees on bank loans; and 
(iii) enable public and private loans with subsidised interest rates.

It will also recognise the important role of the banking sector to deal with the economic effects of the COVID-19 outbreak, namely to channel aid to final customers, in particular small and medium-sized enterprises. In addition, short-term export credit insurance may be provided by the State where needed.

The European Commission has made it clear that the Temporary Framework will remain in place until the end of December 2020 and, as the UK remains in the transition period, it will to apply to the UK.

The Chancellor has already started to announce various financial measures to mitigate the financial impact on businesses in the UK, the latest details of this are contained in the guidance.

The Temporary Framework would allow the Chancellor further flexibility in the coming weeks and months to provide state support up to the levels in the framework without requiring additional approvals from the European Commission.

As the coronavirus situation is rapidly evolving, our advice may change in light of Government announcements and on-going developments; please consult our coronavirus hub for our latest thinking.

Read the statement here.