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What landlords need to know about the EU’s new £50bn COVID-19 state aid support scheme
Housing associations are among those that should benefit from a new £50bn EU scheme designed to support business affected by the coronavirus crisis. Paul McDermott and Julian Jarrett explain the details
The European Commission has approved the third UK coronavirus-related state aid ‘umbrella’ scheme.
Despite Brexit, the EU still retains its state aid role in the UK during the transition phase. The scheme is made under the EU’s COVID-19 temporary framework.
The reason for state aid control is to prevent market distortion through selected businesses being favoured over others by being given an unfair advantage by the public sector.
State aid treats housing associations as businesses, though support for council-owned housing is usually outside of state aid rules.
The common objective of the UK and EU is to provide support to deal with the economic disruption caused by the pandemic.
The aim is to sure up liquidity for businesses, avoid mass unemployment and ensure there are functioning organisations which are capable of kick-starting the economy when the health crisis subsides.
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The umbrella scheme enables all levels of the UK public sector to provide support. In view of the importance of both the housing and construction sectors, we anticipate that funding and support will be primarily made available at a national level; with regional and local authorities more likely to support local initiatives.
The new scheme is not designed to give a general boost to promote construction, rather it is clearly designed to deal with the short-term disruption arising from the crisis.
In practical terms, this means there will be no funding to turbocharge housing delivery. Instead, support will be targeted at dealing with cash flow and other short-term economic dislocation in order to ensure both sectors survive and are capable of functioning after this crisis is over.
“In view of the importance of both the housing and construction sectors, we anticipate that funding and support will be primarily made available at a national level”
To reflect the temporary nature of the scheme, any grants, guarantees or loans must be given before 31 December 2020 – although this date may be extended. Loans may have a maximum term of six years.
An important condition that applies across the board to aid under the scheme is that the recipient must not have been insolvent or “in difficulty” on 31 December 2019.
What support is available under the umbrella scheme?
The scheme itself does not guarantee any particular funding will be made available. However, as the government adopted it, the reasonable expectation is that at least some of the following measures will be made available to the housing and construction sectors: direct grants, equity injections, advance payments and selective tax advantages – these are limited to €800,000, though a further €200,000 could also be available.
The amount available is unlikely to assist any large business which is in trouble. The government’s expectation is that subsidised loans or guarantees will be used to provide substantial support.
Subsidised pubic loans to businesses. The maximum loan amounts available are likely to be substantially higher than those for grants and will be determined by the size and financial strength of the borrower.
Public sector guarantees will be available to support private sector loans. The maximum amount which may be guaranteed is subject to similar factors which apply to the loans subject to a maximum of 90% of the private loan amount. A subsidised premium guarantee premium will have to be paid.
Other state aid compliant support which may be available
Public support, which is available to all businesses, does not distort competition and is allowed. Support to citizens (as consumers) can also be structured not to be unlawful.
This is why the government’s support for furloughed employees is permitted.
“Further UK state aid schemes are likely to be adopted to deal with substantial loans to major businesses or as ad-hoc measures to support major companies”
Similarly, if the UK deferred or reduced corporation tax for all businesses, this would not give rise to unlawful state aid.
The government has also adopted a state aid scheme to cover loans and guarantees arranged through the state aid-owned British Business Bank.
Further UK state aid schemes are likely to be adopted to deal with substantial loans to major businesses or as ad-hoc measures to support major companies.
The public sector has also been issued with guidance to support its contractors and suppliers in the Procurement Policy Note 02/20. This suggests using existing contract mechanisms to ease pressure on contractors. Providing these changes are structured correctly they should remain both public procurement and state aid compliant.
State aid ‘regulations’ also permitted public support for a range of developments, which include affordable homes, market rented homes, business retail and leisure space as well as research facilities.
These exemptions may prove useful when the time comes to kick-start the economy though – as with the COVID-19 umbrella scheme, conditions will apply.
Paul McDermott, partner, and Julian Jarrett, solicitor, Trowers & Hamlins
