The risk

The need to consider State aid is often overlooked. In these economic times that can be fatal.

If illegal State aid is granted the European Commission can order the recovery of the aid up to ten years after it was granted. That is a long time to be exposed to the risk of a challenge.

On 18 February, the European Commission's Vice-President in charge of Competition issued a press release detailing that there has been an increase in the amounts of illegal aid recovered: In 2010 European Union Member States recovered a total of £530 million in illegal subsidies. The pace of recovery is also increasing, with over half of it being recovered within the first two years of its grant.

What is State aid?

Article 107 of the Treaty on the Functioning of the European Union prohibits a grant of State aid where:  

  • the aid is granted by a member State or through State resources;
  • the aid distorts or threatens to distort competition; and
  • the aid affects trade between member States.  

This has been construed very widely by the European courts to include many different forms of financial assistance or economic advantage granted by the State (for example a loan at a low interest rate, a debt write-off, a guarantee). State aid and public procurement regularly need to be considered together.

We regularly advise local authorities and other public bodies on State aid and public procurement issues.

A link to the Vice-President's press release is available here.