Why does the EU control State aid?
A company which receives government support gains an advantage over its competitors. Therefore, the Treaty generally prohibits State aid unless it is justified by reasons of general economic development. To ensure that this prohibition is respected and exemptions are applied equally across the European Union, the European Commission is in charge of ensuring that State aid complies with EU rules.
What is State aid?
State aid is defined as an advantage in any form whatsoever conferred on a selective basis to undertakings by national public authorities. Therefore, subsidies granted to individuals or general measures open to all enterprises are not covered by this prohibition and do not constitute State aid (examples include general taxation measures or employment legislation).
To be State aid, a measure needs to have these features:
- there has been an intervention by the State or through State resources which can take a variety of forms (e.g. grants, interest and tax reliefs, guarantees, government holdings of all or part of a company, or providing goods and services on preferential terms, etc.);
- the intervention gives the recipient an advantage on a selective basis, for example to specific companies or industry sectors, or to companies located in specific regions
- competition has been or may be distorted;
- the intervention is likely to affect trade between Member States.
Despite the general prohibition of State aid, in some circumstances government interventions is necessary for a well-functioning and equitable economy. Therefore, the Treaty leaves room for a number of policy objectives for which State aid can be considered compatible. The legislation stipulates these exemptions. The laws are regularly reviewed to improve their efficiency and to respond to the European Councils’ calls for less but better targeted State aid to boost the European economy. The Commission adopts new legislation is adopted in close cooperation with the Member States.
IUT Social Housing and State aid
A key goal of IUTs is the creation of a favourable legal framework for the development of social housing within EU Member States. Although under EU law social housing providers are exempted from state aid notification, the conditions to benefit from such exemption are rather strict. In particular, the companies entrusted with a mission of general interest can provide social housing assistance only to “disadvantaged citizens” who are not able to find housing in market conditions. Such a restrictive definition of the target group has created an unstable legal environment for the development of the social housing sector and a major obstacle to the achievement of social cohesion, a major objective of the Europe 2020 strategy. Against this background, IUT has conducted several advocacy initiatives. The full IUT report on the subject is available in Section 1 here. and the reports of the Committee of Regions, European Parliament, EESC and ECJ, the draft and final Resolution of mayors and the Swedish and Dutch case (2009) are also linked as is IUTs contribution to the paper on Future challenges of Social Housing in Europe.
SERVICES OF GENERAL ECONOMIC INTEREST, SGEI
PUBLIC AID TO SOCIAL HOUSING
2005: In the Decision of the European Commission of 28 November 2005 on the application of Article 86(2) of the EC Treaty (new Article 106(2) TFUE) to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest (here-after the “SGEI-Decision”), the European Commission confirmed that social housing provided to socially disadvantaged groups can be considered as a SGEI and that the cost for providing such service may be compensated by the Member States in accordance with the rules laid down in this Decision.
Resolution of 22 February 2005, the Parliament recalled that “the amount of compensation may not exceed what is necessary for the operation of the service [of general economic interest] and must not be used to finance activities outside the scope of the service in question (so-called cross-subsidies)”. Specifically with regard to social housing, the Parliament noted that “the scope of the draft Decision includes […] social housing undertakings, although high volumes of aid may lead to distortions of competition in these areas too; points out that these sectors are also of interest to private operators; points out, furthermore, that the granting of subsidies may have a detrimental effect on competition”