Examination of Witnesses (Questions 120-139)
MR HUGH
SAVILL AND
MR GRAHAM
BRANTON
TUESDAY 26 FEBRUARY 2002
120. Do you ever challenge things that come
from the Commission and say, "No, this does not apply, go
away"?
(Mr Branton) We do if we think the Commission is on
shaky legal territory; we most certainly do. One area where we
clearly have done is in relation to things touched by defence
interests which are explicitly excluded in the Treaty from coverage
by competition rules, and in some of these areas we are currently
advising that the Commission does not have jurisdiction, but in
relation to this we do not think that line will stick, so it is
pointless for us to try and argue it.
121. With relation to possible alternative avenues,
the latest buzz phrase is "services of general economic interest".
What does that mean? Could it actually be applicable in this area?
(Mr Branton) How long have you got!
(Mr Savill) I apologise for the EU jargon. Services
of general interest are more or less public services. Services
of general economic interest are public services provided through
the market and this is Article 86 of the Treaty as opposed to
Article 87 which is the state aids article. What this says is
that these services of general economic interest should be subject
to the provisions of the Treaty including the state aid rules
but not so as to prevent them carrying out the remit that they
have been given by the state. This is a less harsh test, if you
like, than the normal state aid rules. This is an area we have
been exploring with the Commission really quite closely recently
because it seemed to us, for instance in the area of regeneration,
that if one could identify a public service remit that had been
conferred on somebody with a regeneration objective, that was
a case one could put to the Commission to say this was deserving
of being looked at under the services of general economic interest
framework rather than just under the state aid framework. We think
this is quite a promising way forward.
122. There has also been the recent decision
in France Ferring v Acoss the Social Security Department
there. What about the implications for tax relief?
(Mr Savill) There are decisions from the European
Court of Justice saying that tax is a state aid quite as much
as anything else. The significance of the Ferring decision,
which we were greatly relieved by, is that it rolled back a previous
sequence of jurisprudence from the European Court which had held
that any provision of funds by the state to a company for the
provision of a public service should be viewed as a state aid.
You can imagine the consequences of that would be that any time
that the government or a local authority or any of the public
bodies paid money to a company to provide a service, that would
have to be notified to the Commission and it would all have to
be assessed under state aid rules.
123. So when you rent photocopiers and you are
in a local district council you would have to notify it to the
Commission?
(Mr Branton) No, they never went quite that far but
they made a distinction between services to the public sector,
which were covered by procurement rules which were just public
purchases, public supplies, and services being provided to the
general public paid for by the state. The latter would be subject
to the state aid rules under the Commission's former interpretation.
124. So if a small district council in the West
Country contracted out the management of a small leisure centre
it would have to notify the European Commission?
(Mr Savill) Indeed, this is why we did not like this
interpretation at all. The excellent Ferring judgment overthrew
that interpretation, much to our relief. What they said was that
if the amount paid to the service provider was clearly the minimum
necessary to do that service then there was no state aid full
stop. You do not have to notify it to the Commission, they do
not have to consider it. This seems a far more sensible basis
on which to proceed. We have since intervened in a French case
involving rendering and slaughtering to try and maintain that
interpretation.
125. Are there any practical ways in which this
decision would be applied within the regeneration arena?
(Mr Branton) We are looking at that. It is quite difficult
because the exact scope of the decision has not been bedded down
in the law yet and there is a lot of uncertainty as to exactly
where it applies. For example, one could imagine that one could
get round the state aid rules simply by imposing a so-called public
service obligation on a company to build motor vehicles in Birmingham
and to use the existence of that public service obligation to
give them a whole chunk of money in a way that would clearly distort
the Single Market. Obviously that would still be state aid. Exactly
where the Ferring judgment stops is an open question. We
do not know the answer to it yet hence our intervention in the
European Court to try to get the Court to clarify the exact scope
of that judgment. In the meantime our own interpretation is that
we have to be able to show that there is manifestly no over-compensation
which implies in some cases where an open tender is launched to
select a developer to take forward a particular development exercise
that we might be able to argue in some of those cases that there
is no state aid, even though there is a grant going forward to
the developer, some sort of gap funding grant, and the tender
would be a subsidy auction to select the developer to take a project
forward. We think it may be possible to have some of those schemes
going through without using state aid as a result of Ferring
but obviously, as you can imagine, it is very difficult to
draw up a scheme to take forward a concept like that in such a
way that it is solid and not open to challenge in the courts by
competitors of the companies receiving money.
Dr Pugh
126. Is the authority always bound to accept
the lowest possible tender and would they have real difficulty
in accepting what is a better but higher tender?
(Mr Branton) That would be one of the consequences
of moving forward with such a scheme. It would make it very difficult
to accept other than the lowest tender. These are the sorts of
practical issues which stand in the way of using Ferring to
take forward a new scheme. However, it is something we are looking
at actively.
Chris Grayling
127. What about where the object of the implementation
of a regeneration scheme is a housing association?
(Mr Branton) That takes us into new territory which
is a little bit related to some of the Lottery issues, which is
where the recipient of the funding is not an economic undertaking,
the recipient of the funding is a non-profit body or a charity
or a trust or something of that sort. In those cases the state
aid rules often do not apply anyway because the state aid rules
only kick in in relation to distorted competition, so organisations
which are non-profit oriented which do not compete on the market
are eligible to receive funds. Again, you have to be careful because
these bodies do not always spend the money but give the money
to other recipients.
128. They do not build it themselves.
(Mr Branton) At that stage it can still be state aid
in the hands of the eventual recipient of the funds. Again, we
have got to be a bit careful about how we use that exemption from
the state aid rules to allow projects to move forward.
Chairman
129. Does the Ferring judgment mean that
all the PIP schemes that were stopped could have gone ahead?
(Mr Branton) That is a very difficult question.
Mr Betts: That is why he asked it!
Chairman
130. I just want a simple answer.
(Mr Savill) Probably not.
131. Why?
(Mr Savill) I would have to look at each individual
project and see whether a public service was entrusted to each
of them.
132. But the public service was the regeneration
of the community, was it not?
(Mr Savill) It is a technicality. The public service
has to be formally entrusted to somebody before you can call on
this service of general economic interest argument.
133. The planning authority has that responsibility,
does it not? It does not mean they have to have the money given
directly to them, does it?
(Mr Branton) One of the reasons why it would not apply
is that in a lot of these cases the land which is being developed
is owned by the developer at the start so the payment to the developer
of gap funding under PIP was not subject to any competitive tender
process. There was only one possible recipient because that company
owned the land at the start. So it is difficult to prove that
you have manifestly paid the minimum necessary to allow that development
to go forward because you have no competitive process.
134. It must be because no one else owned the
land so nobody else could have put in a lower bid to do it.
(Mr Branton) You could say if you had paid £100
less would the project have still gone ahead? You do not know
what commercial benefit the recipient of the funds has derived
from taking the project forward, how much profit they have made,
was it an appropriate profit, was the payment by the state of
gap funding therefore the minimum necessary to ensure that the
whole project aim was taken forward?
Chairman: The whole principle for going through
the gap funding in all those PIP schemes was to assess what was
the minimum gap and there was some pretty hard haggling done in
those schemes as to what was the minimum that was necessary to
make the scheme go ahead.
Mr Betts
135. With the potential for claw-back if extra
was made.
(Mr Branton) Yes, but the basis of it was to identify
the gap—this is what the Commission would say—between
the cost of the works and the value of the finished item. Okay?
The value of the finished item takes account of the economic development
potential of the site for the user of the site and for the development
company. The Commission is talking about the minimum necessary
to achieve the public service obligation, which is the justification
for the subsidy to go forward, so it is not exactly the same minimum
that we are talking about here. It does get technical.
Chairman
136. We have got the idea that it is technical,
yes.
(Mr Branton) Let me try and give you an example. If
you have got a scheme where a company wants to take forward—
137. I think we could leave it at this point
because you have accepted that the PIP schemes could not go ahead
and although it does seem from this judgment an odd decision,
I think we had better watch our time.
(Mr Savill) It makes a much better climate for another
scheme along similar lines.
Dr Pugh
138. Has the Environmental Protection Framework
been much use so far and what is the Government's attitude towards
it? Are they encouraging it, discouraging it?
(Mr Branton) The Environmental Aid Guidelines do help
in certain circumstances to get projects off the ground that would
not be possible otherwise. However, as they currently stand they
are extremely complicated and difficult to use and one of the
things we are saying to the Commission in relation to environmental
cases is can we have simpler guidelines for the future please.
They are of use particularly in cleaning up industrially polluted
sites where, as long as the site is being developed by somebody
other than the person that caused the pollution, it is possible
to pay 100 per cent of the cost of the clean-up under the Environmental
Aid Guidelines. So, yes, they are a help but only in certain specific
situations. What we would quite like is to see them extended so
that that principle of cleaning up a contaminated site could also
be used, for example, to clean up a derelict site to cover the
cost of bringing the site up to "ready-to-build" status.
We think the logic of the Environmental Aid Guidelines could be
extended towards covering dereliction costs, but that is a step
further than they are at the moment.
139. Do you need to win an argument with the
Commission in order to achieve that?
(Mr Branton) Yes and that is one of the arguments
we will be putting to them.
| 
