On 11 February 2009, the European Commission found that British Telecom plc had received unlawful State aid from the UK Government. The Commission ordered recovery of the aid, which British Telecom had received since 2005.

The Commission’s investigation, which began in November 2007, related to the privatisation of British Telecom in 1984. As part of this process, the UK Government guaranteed British Telecom’s pension liabilities. The guarantee relates only to employees of British Telecom up to the time of privatisation and was found by the Commission to benefit only the employees themselves. The guarantee itself does not therefore constitute State aid.

However, the Government guarantee also has the effect under UK legislation of exempting the guaranteed pension fund from certain obligations. One such obligation is to pay a levy to the Pension Protection Fund, which was created in 2004. The Commission found the fact that the pension fund for pre-privatisation employees of British Telecom was not required to pay this levy conferred a financial advantage on British Telecom. This advantage could not be justified under EU State aid rules.

The UK Government is therefore required to recover the total unpaid levy from British Telecom, plus interest. British Telecom is expected to appeal the decision.