United Kingdom: Working Capital Guarantee Scheme
Description
On 25 February 2009, the UK authorities notified their intention to implement a guarantee scheme to support the provision of working capital loans to UK businesses ("WCS").
According to the UK authorities, there is currently a severe credit crunch in the UK. The purpose of the Scheme is to encourage banks to provide new lending to businesses with an annual turnover of up to £500 million operating in the UK market. It will do this by offering banks a guarantee (of up to 50%) in respect of portfolios of working capital loans to sound, creditworthy UK companies with an annual turnover of up to £500 million. The guarantee reduces the risk weighted assets of the bank. The UK estimates the total UK working capital loan market for firms with a turnover below £500 million to be in the region of £70 billion.
The Commission concluded that the measure contains aid in favour of the participating banks and gave the following assessment:
"In order to determine whether the measure constitute an aid, it needs to be verified whether the other conditions laid down in Article 87 (1) EC Treaty are fulfilled. The Commission observes that the measure is financed by State resources since the State will support the risk associated with the guarantees. The advantage is selective since limited to the participating banks. By favouring these banks, the measures distort competition. Several banks operating on the UK market are subsidiaries of foreign banks and most of the potential participating banks have international activities. Consequently, the measure affects trade between Member States." (par. 40 of the letter from the EC to the United Kingdom - Brussels, 24.3.2009 C(2009) 2150 final)
Article 87(3)(b) of the EC Treaty enables the Commission to declare aid compatible with the Common Market if it is "to remedy a serious disturbance in the economy of a Member State." This aid has to be applied restrictively and must tackle a disturbance in the entire economy of the Member State according to the interpretation of the Article 87(3)(b) by the Court of First Instance.
The Commission referred to its Communication on the financial crisis (Temporary Framework) and concluded that the Measure complies with the conditions laid therein. Therefore, despite the measure constituting State aid pursuant to the Article 87(1) EC, it is compatible with the Common Market according to the Article 87(3)(b) EC Treaty. The Commission raises no objections against the measure at issue and authorizes it as emergency intervention in the face of the current financial crisis. (par. 42-72 of the letter).
A state measure in the GTA database is assessed solely in terms of the extent to which its implementation affects the extent of discrimination against foreign commercial interests. On this metric, the state aid proposed here is discriminatory.
Any Evidence-Based Deliberation:
| Question | Result |
|---|---|
| Is there anything in the public record to suggest that evidence of the effectiveness of the proposed measure was considered during official deliberations? | Yes |
| Is there any evidence that alternatives to the proposed measure were considered? | |
| Is there anything in the public record that suggests that empirical evidence informed the comparison across the alternatives available to government? | |
| Was such evidence identified? | |
| Is such evidence publicly available? | |
| Did the official decision-maker in question provide an explanation as to why a chosen measure was favoured over alternatives? | |
| Is there any evidence to suggest that potentially affected trading partners were consulted before the measures were taken? | |
| Is there any evidence that safeguards have been put in place to ensure that implementation of the initiative is transparent and non-discriminatory? | |
| Did the government state its intention to review the measure within one year of implementation? | Yes |
Date Discovered:
Implemented: Yes
Date of inception: 20 Mar 2009
Duration: 12 months
GTA Evaluation: Red
Source:
the letter from the EC to the United Kingdom - Brussels, 24.3.2009 C(2009) 2150 final. Available from < http://ec.europa.eu/community_law/state_aids/comp-2009/n111-09.pdf >
Government Response:
- 291 reads
