Local aid is not State aid

Bethan Lloyd examines how local authorities can provide local aid without falling foul of rules on state aid.

The rules on local aid can offer an incredibly useful route for a local authority to avoid having to grapple with the State aid rules. Public support for a project will only amount to State aid if the aid given affects trade between Member States of the EU. Local authorities are, by definition, focussed on supporting projects which serve their immediate locality and which may be unlikely to trigger the rules on State aid.    

The starting point is that where the support the local authority gives strengthens the position of a business compared to similar businesses competing in cross-border trade within the EU, there will be an effect on trade. There can be an effect on trade even if the business being supported is not itself engaged in cross-border trade. This is because the mere fact the local authority has supported the business could mean that competitors will find it more difficult to enter the market in the UK or to compete effectively as a result.

However, there will not be an effect on trade and consequently no State aid where the local aid criteria are met. In its Notice on the Notion of State Aid [1], the Commission explains how it assesses whether aid has a purely local impact and consequently no effect on trade between Member States. In broad terms, there are two key criteria for aid to qualify as local aid and both must be satisfied:

• The business being supported must supply its goods or services only to a limited area within the UK and it must be unlikely to attract customers from other Member States
• The fact the local authority support is being given must not be likely to have more than a marginal impact on the decisions of competitors in other Member States whether or not to trade cross-border or establish themselves in the UK, or on their ability to do so

Data on the customer profile of the business could help to demonstrate that the first criterion is satisfied. If the project is a new venture, then it will be necessary to consider the target customer profile. A small number of overseas customers may not necessarily rule out local aid treatment provided they are not specifically targeted.

The second criterion can be a little more difficult to apply. The more evidence there is of actual cross-border trade in the market sector concerned, then the less likely it is that this criterion will be satisfied. Even if there is not currently any cross-border trade, the mere possibility that there could be trade in the future can be problematic. It can be difficult to predict how the Commission or the Courts will apply the second criterion. Although a taxi business is almost by definition local in nature, in a case from of the European Court of Justice concerning black cabs and minicabs in London [2] the Court thought it possible that aid given to London black cabs (but not minicabs) could have an effect on trade because businesses in other Member States would find it harder to compete in the minicab sector in the UK as a result.

Relying on the local aid rules necessarily involves taking a risk-based decision since the rules leave scope for flexible interpretation. Whilst we have the Commission’s past decisions to guide us, each case will turn on its own particular circumstances. In practice there is a spectrum – some projects a local authority is likely to want to support can be confidently placed within the local aid category, whereas other projects may be more borderline.

One relatively safe area is local leisure facilities. The growing trend for local authorities to outsource delivery of their leisure facilities to economic operators has made State aid a relevant consideration. Helpfully, the Commission cites sports and leisure facilities which serve a predominantly local audience as an example of something which can benefit from local aid treatment.

Another relatively safe area is support for cultural venues and events. The Commission has said that only funding granted to large and renowned cultural institutions, or for events which are widely promoted outside their home region, have the potential to affect trade between Member States. This suggests that local authorities can support small local venues, such as small theatres or concert halls, without risk of triggering the State aid rules.

In other projects it can feel a little too risky to rely on a local aid argument. The recipient business may have written a business case to support its applications for grants and funding, both from the local authority and perhaps from other funders too. The business case will sometimes emphasise that the project will build international links, attract tourists etc. in an attempt to justify the grants and other funding and demonstrate that the project should be given the green light. This is usually good news because it can help to demonstrate the value of a project, that it is likely to be successful and therefore a good thing to be spending public money on. Unfortunately, these sorts of aspirations can make it potentially riskier to rely on the local aid criteria to provide funding or other support to the project.

There is some caselaw which may help in this situation. In 2013, the Commission applied the local aid criteria to public funding for a new archaeological museum in Crete even though Crete’s archaeological heritage is a magnet for overseas tourists [3]. The Commission felt that the new museum would not constitute either a final destination in its own right or a new ‘pole of attraction’ for tourists. It felt that any visitors to the museum from other Member States would have made a decision to visit Crete irrespective of the existence of the new museum.

Similar reasoning may help to de-risk public support for venues which may be visited by overseas tourists but which are not the reason why those tourists decided to visit the UK.

Save in the most obvious cases of local aid, there may be the need to accept a degree of risk when relying on a local aid argument. One way to remove such risk would be to notify the support for the project to the European Commission for approval. However, it is unlikely that the Government would support a notification for a small local project. In any event, a more practical route to de-risk local authority support for a project, if there is an unacceptable level of uncertainty as to whether a local aid argument would succeed, is to structure the aid to bring it within the terms of a block exemption. The General Block Exemption Regulation contains various block exemptions which could be of particular interest to local authorities, such as the block exemptions for culture and heritage conservation, for aid for sport and multifunctional recreational infrastructures and for investment aid for local infrastructures.

Bethan Lloyd is a partner at Geldards LLP. She can be contacted on 029 2039 1890 or This email address is being protected from spambots. You need JavaScript enabled to view it..