Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 120-139)



  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.


  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!


  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.


  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.

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