The EC Treaty prohibits the provision of Government subsidies (or State aid) in a which may distort competition or provide an unfair advantage over competitors. For example, a local authority which restricted a competitive tender only to not-for-profit organisations may well fall foul of the State aid rules.
Pleasingly the European Commission has updated the State aid rules in a manner which will render many contracting arrangements between local authorities and social enterprises concerning social services exempt. Whilst the previous incarnation of the State aid Rules enabled public funding of some public services the rules were far from clear. The new rules expand the scope of the block exemption to encompass a wide array of hospital and social services of the type which many local authorities are now seeking to contract out. This development
will provide a boost to Government big society policy initiatives including the community empowerment provisions of the Localism Act 2012, which provide new rights to voluntary and not for profit organisations to carry out public services.