2003/433/EC: Commission Decision of 21 January 2003 on the aid scheme "Stamp duty exemption for non-residential properties in disadvantaged areas" notified by the United Kingdom (Text with EEA relevance) (notified under document number C(2003) 41)
Date: 2003-01-21
Institutions: European Commission
Subjects: State aid, United Kingdom, aid system, control of State aid, industrial building, less-favoured region, stamp duty, tax exemption

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 21 January 2003

on the aid scheme ‘Stamp duty exemption for non-residential properties in disadvantaged areas’
notified by the United Kingdom

(notified under document number C(2003) 41)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/433/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular the first subparagraph
of Article 88(2) thereof,

Having regard to the Agreement on the European Economic Area, and in particular Article 62(1)(a)
thereof,

Having called on interested parties to submit their comments pursuant to the provisions cited above (1) and
after taking those comments into account,

Whereas:

I. PROCEDURE

(1)

(2)

(3)

(4)

(5)

By letter dated 21 December 2001, and registered by the Commission on 9 January 2002, the
United Kingdom authorities notified a scheme proposing to exempt transfers of non-residential
property in disadvantaged areas from stamp duty.

By letter of 27 February 2002, the Commission informed the United Kingdom authorities of its deci-
sion to initiate the procedure of Article 88(2) in relation to the stamp duty exemption scheme.

The decision to open the procedure was published in the Official Journal of the European Communities
on 27 April 2002. The Commission invited interested parties to submit their comments on the aid
scheme (2).

By letter of 9 April 2002, the United Kingdom authorities requested the Commission an extension
of the deadline to submit comments. The Commission granted the extension, and the official
response from the authorities was sent on 6 May 2002, registered by the Commission one day later.
A second letter providing supplementary information was sent to the Commission on 13 November
2002, registered by the Commission on 27 November 2002. A final
letter was sent on 26
November 2002, registered by the Commission on 2 December 2002.

In addition, several meetings took place between the United Kingdom authorities and the Commis-
sion on the following dates: 1 August 2002, 10 September 2002, 25 September 2002, 15 October
2002 and 11 November 2002.

(1) OJ C 102, 27.4.2002, p. 22.
(2) See footnote 1.

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(6)

The Commission received comments from two parties: the Royal Institute of Chartered Surveyors by
letter of 27 May 2002 and the British Property Federation by letter of 24 May 2002. The United
Kingdom authorities commented on these letters on 26 July 2002.

II. DESCRIPTION OF THE AID

(7)

(8)

(9)

(10)

The aim of the measure is to contribute to the physical, economic and social regeneration of desig-
nated disadvantaged areas by way of reducing the cost of acquiring non-residential property in these
areas. The scheme is part of the United Kingdom government's ‘Enterprise in disadvantaged commu-
nities’ initiative.

The proposed aid takes the form of an exemption from stamp duty obligations, namely taxes levied
on documents relating to sales and leases of land and buildings and transfers of shares. Stamp duty
is a transaction tax imposed on the purchaser or leaser of land or property.

The eligible cost comprises the consideration (the purchase price) of the property (the land and/or
buildings) situated in the qualifying area, or the average annual rental for a new lease. Apportion-
ment is required if the property is only partially situated in a qualifying area. Stamp duties vary
according to the purchase price of the property and, in the case of leases, according to the average
annual rental and the duration of the lease. The rate of the stamp duty and hence the proposed
exemption is between 1 % and 4 % of the purchase price in the case of a purchase of a property and
between 1 % and 24 % of the average annual rent in the case of a new lease (3).

The stamp duty exemption would apply to sales and new leases of non-residential properties located
in designated disadvantaged areas in the United Kingdom. The eligible areas, which have an average
population of 7 000, are selected on the basis of the most recent indices of multiple deprivation
(IMD) developed for each of the four regions of the United Kingdom. These indices are based on
income, employment, health deprivation and disability, education skills and training, housing and
geographical access to services. In England, Wales and Northern Ireland the geographical units used
are the electoral wards or divisions and in Scotland, the postcodes. 2 000 disadvantaged areas have
been designated in the United Kingdom, covering 22 % of the total population in England, 18 % in
Scotland, 47 % in Wales and 40 % in Northern Ireland. The present list of eligible areas has been set
out in ‘The Stamp Duty (Disadvantaged Areas) Regulations 2001’. The United Kingdom authorities
have indicated that qualifying areas (not more than 2 000) will be kept under review, although
changes to the list are likely to be infrequent.

(11)

The United Kingdom authorities have estimated that the average proportion of hardcore brownfield
(meaning vacant and/or derelict) land in the targeted areas is 2½ times that of other areas.

(12)

The scheme applies to undertakings of any size and any location and operating in any sector of the
economy. The duration of the scheme would be 10 years.

(13)

The budget cost of the scheme is estimated at up to GBP 60 million (around EUR 94 million (4))
per year.

III. OPENING OF PROCEDURE

(14)

In its letter of 27 February 2002, the Commission took the view that the notified scheme constituted
State aid within the meaning of Article 87(1), since there were State resources involved, there was
selectivity through its being targeted towards particular geographic areas, and since it might distort
competition and affect trade at Community level.

(3) The United Kingdom authorities have declared that, ‘relative to the present value of the rent that would be paid over
the life of the lease, the stamp duty on the rent will be less than 4 % and generally less than 1 %. Hence the effective
rate of stamp duty (and thus the aid intensity) on leases overall, will also be less than 4 %.’

(4) Exchange rate used: 1,5698 from 6.12.2002.

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(15) One of the reasons for opening the procedure was that the Commission had doubts whether the
notified measure fulfilled the conditions of the Guidelines on National Regional Aid (5). The stamp
duty exemption, according to the notification, would apply to transfers of non-residential property
situated in so-called designated disadvantaged areas, which have been defined on the basis of
different indicators and geographical units than these of the United Kingdom regional aid map
approved by the Commission. (6) In addition, the Commission had doubts whether the transactions
envisaged by the scheme would constitute initial investment within the meaning of Article 4.4 of
the Guidelines on National Regional Aid (7).

(16) Other doubts related to that part of point 4.5 of the Guidelines on National Regional Aid that
provides that in the event of a purchase, assets for whose acquisition aid has already been granted
prior to the purchase should be excluded. In the notified scheme, however, assets that are the subject
of successive transactions are not excluded from the aid. In addition, since the scheme allows cumu-
lation with other aid, the Commission had doubts whether the aid intensities laid down by the
Guidelines on National Regional Aid would, at the end of the day, be observed. Finally, since the
scheme would be applicable to all sectors, it was unclear how the authorities intended to comply
with the rules applicable to certain sectors (including transport, steel, shipbuilding, synthetic fibres,
motor vehicles, fisheries and coal), or those applicable to the products listed in Annex I to the
Treaty, which are excluded from the scope of those Guidelines.

(17)

The Commission also had doubts whether the scheme was in conformity with the Deprived Urban
Area Guidelines (8). Given the significant number of people living in targeted areas, the Commission
wondered whether there was compliance with point 8 of those Guidelines, whereby the total popu-
lation covered by such areas must not exceed 1 % of the national population. In addition, it was
unclear to what extent the areas qualifying under the notified scheme that are outside the regional
aid map complied with the other eligibility criteria laid down in point 7 of the Deprived Urban Area
Guidelines. Under the Guidelines, only small and medium-sized enterprises (SMEs) could benefit
from State aid. However, the proposed scheme did not seem to impose restrictions as to the size of
firms.

(18)

The Commission further noted that there was no sectoral coverage of the notified scheme, which
was not limited to SMEs, nor to firms in difficulty nor to any of the following activities: research
and development, environmental protection, training, creation or maintenance of employment.

IV. COMMENTS FROM THE UNITED KINGDOM

(19) According to the United Kingdom authorities, the scheme would encourage business establishment
and property development in disadvantaged and thus poor areas of the United Kingdom by
promoting their physical and economic regeneration.

(20)

In that regard, they argue that, for the purposes of regeneration, targeted State aid can effectively
help to address market failures. Market failures are identified as those which prevent private enter-
prises from being engaged with deprived communities and which lead to sub-optimal market solu-
tions; in particular, market failure can lead to dereliction and abandonment, lack of local services
and community dislocation as residents commute to find work. Correcting market failures is, argu-
ably, in accordance with the common interest.

(5) OJ C 74, 10.3.1998, p. 9.
(6) The United Kingdom Regional Aid Map for the period 2000-2006 was approved by the Commission by letter No SG

(2000) D/106296 of 17 August 2000 (N 265/2000).

(7) According to point 4.4 of the Guidelines, initial investment means ‘an investment in fixed capital relating to the
setting-up of a new establishment, the extension of an existing establishment, or the starting-up of an activity invol-
ving a fundamental change in the product or production process of an existing establishment (through rationalisa-
tion, diversification or modernisation).’

(8) OJ C 146, 14.5.1997, p. 6.

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According to the data provided in this regard, there are substantially fewer commercial property
transactions in the targeted wards than in the rest of the United Kingdom. The rate of transactions
for commercial property in the disadvantaged wards is around six times lower than the rate for
wards in the rest of the United Kingdom. Low property transactions are claimed to be the symptom
and the perpetuating cause of property market failures (by preventing efficient price formation in
the market). The measure, by reducing the cost of transactions in the IMD areas, would address both
the symptoms and the causes of market failure.

(21)

The areas needing regeneration are microspatial units. These areas are not necessarily those needing
regional development. They therefore do not necessarily coincide with the regional map, and
targeting entire regions would prove to be ineffective. The United Kingdom admits that neither the
Guidelines on National Regional Aid nor the Deprived Urban Area Guidelines are suited for accom-
modating this kind of measure, which, however, is compatible with Article 87(3)(c) of the Treaty.

(22) According to the United Kingdom authorities compatibility with Article 87(3)(c) can be proved since
the ‘aid to facilitate development of certain economic areas’ can encompass aid targeted at microspa-
tial units suffering from the market failure explained above.

(23) As regards aid ‘not adversely affecting trade conditions to an extent contrary to the common
interest’ this condition would also be met since the aid intensity is very low (maximum 4 % of the
investment). In the light of this argument, the United Kingdom authorities also claim that the small
aid intensity will not constitute an incentive for undertakings from other Member States to invest,
and therefore there would be no significant effect on trade (9). Notwithstanding this, the aid would
be available to any company from anywhere in the Community or beyond, investing in commercial
property in these areas. The non-discretionary way in which the aid is to be applied, the argument
runs, also limits the effect on competition.

(24)

Even if the United Kingdom authorities acknowledge that the measure does not meet all the require-
ments of the Guidelines on National Regional Aid, they argue that there is an overlap between the
‘disadvantaged areas’ and the assisted areas under the United Kingdom regional map.

(25) According to the data provided, in England 62 % of the deprived wards (out of the 15 % constituting
the most deprived wards) would fall inside assisted areas (10). In Scotland, the overlap with assisted
areas would be of 80 %. In Wales, where 42 % of the wards are disadvantaged areas, the overlap is
88 %. Finally, the whole of Northern Ireland is an assisted area, so that all the wards in the country
are within the regional aid map.

(26)

Even if the measure does not meet the criteria of the Deprived Urban Areas Guidelines either, the
authorities say that there is an overlap. In the case of England, 22 % of the most deprived wards, as
defined above, fall within the scope of the Deprived Urban Area Guidelines. The disadvantaged areas
that are also within the definition of deprived urban areas account for nearly 6 % of England's popu-
lation (11).

(27)

Cumulation with other aid is not excluded, but the United Kingdom authorities have pointed out
the possibility of verifying that the overall aid intensity ceilings, and in particular the regional ones,
are not breached.

(9) They also ensure that companies benefiting from the stamp duty exemption will have to face, in return, the disadvan-
tages of operating in a less favoured part of the United Kingdom so that the gain to them is likely to be small or
non-existent in practice.

(10) In the light of this data, they argue that more than 84 % of the most deprived wards in England fall within the

Community definitions.

(11) In the light of this, they argue that there is a total (urban and regional) overlap of 20 % of the population in the case

of England.

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(28) As a final argument, the authorities claim that the scheme is part of a global regeneration strategy
undertaken in the whole of the United Kingdom. It is but one element in a package of measures that
are being, or will be, adopted in order to regenerate the most deprived areas. Policy interventions
are being developed in an important number of fields with a view to ensuring that no one is
seriously disadvantaged by where they live. In this regard, the United Kingdom authorities have
provided an overview of the measures introduced or about to be introduced to tackle depriva-
tion (12).

(29)

(30)

(31)

The United Kingdom authorities have, in the letter dated 26 November 2002, agreed to limit the
scheme to a maximum of 2 000 areas.

The authorities, in their letter of 26 November 2002, have also committed themselves to improving
their data collection methods so that in the future it will be possible to systematically analyse
commercial property transaction data on a ward-by-ward basis. Furthermore, a comprehensive data-
base of all vacant and/or derelict land will be established and the updates will be sent to the
Commission as part of the annual report.

V. COMMENTS FROM THIRD PARTIES

In its decision to open the procedure,
comments. Two parties submitted their comments.

the Commission invited interested parties to submit

(32) According to the Royal Institute of Chartered Surveyors, the aim of the measure is to revive the
property market in areas where it has ceased to operate effectively. The Institute sought to explain
the political rationale of the measure, namely the need to secure regeneration of the most deprived
communities. The Institute seems to acknowledge that the measure is not in conformity either with
the Guidelines on National Regional Aid or with the former Deprived Urban Areas Guidelines: ‘(both
guidelines) are not designed to accommodate this sort of measure.’ However, they add, ‘if the United
Kingdom stamp duty exemption scheme cannot be approved under the rules as presently drawn, the
rules ought to be changed.’ As a final point, the Institute claims that the measure will not affect trade
to an extent contrary to the common interest and distortion of competition will be minimal. They
also argue that the measure is aimed at tackling the existing market failure in the field, since the
private sector is failing to engage in some areas of the United Kingdom.

(33)

The British Property Federation argued that the areas needing regeneration are to be regarded as
suffering from market failure and that in a regeneration context,
intervention can enhance the
working of the market. In addition, given the small scale of the measure, it is unlikely that it will
affect competition to an extent contrary to the common interest.

VI. ASSESSMENT OF THE AID

State aid character of the measure

(34)

The Commission considers that the measure constitutes State aid within the meaning of Article
87(1) of the EC Treaty for the following reasons:

(a) State resources are involved in the form of a tax exemption;

(b) even if the measure applies to companies of every size, operating in any sector of the economy,
there is selectivity since the measure is targeted upon particular geographical areas — areas
designated by the IMD — and it favours certain undertakings, namely those investing in non-
residential property in those designated areas. Therefore, the measure provides an advantage to
such companies over other companies investing in the areas that do not receive the exemption;

(c) the measure covers all sectors, and a fortiori sectors where there is intra-Community trade.
According to the case law ‘where a Member State grants aid to an undertaking, domestic produc-
tion may thereby be maintained or increased with the result that undertakings established in
other Member States have significantly less chance of exporting their products to the market in
that Member State’ (13);

(12) These measures are in the field of employment and income, health, education and skills, access to services, crime,

housing and physical regeneration.

(13) Case C-303/88 Italy v. Commission (1991) ECR I-1433, paragraph 27.

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(d) the Commission considers that the amount of aid is small, since it is limited to a maximum of
4 % of the transaction. The estimated taxation relief is GBP 60 million per annum (around
EUR 94 million (14)). Divided by the estimated numbers of annual transactions, 1 200, the
average aid per transaction would be GBP 50 000 (around EUR 78 500). However, this aid
may still affect intra-Community trade and distort competition. According to case law, ‘where
the benefit granted by a public authority to an undertaking is small, competition is distorted to
a lesser extent, but it is still distorted’ (15).

It should be underlined that neither the United Kingdom authorities nor the third parties that have
submitted their comments have contested the State aid character of the measure. The United
Kingdom has chosen not to limit the scheme to the field of Commission Regulation (EC) No 69/
2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC Treaty to de minimis
aid (16). Should a beneficiary of the aid be engaged in several property transactions, it is not impos-
sible that he may receive more aid than allowed under that Regulation.

Legality of the measure

(35)

By notifying the aid scheme as a draft and not putting it into effect until authorised by the Commis-
sion, the United Kingdom authorities have complied with the procedural requirements of Article
88(3) of the Treaty on the European Community.

Exemption grounds

(36)

(a) Article 87(2) of the EC Treaty provides that certain types of aid are compatible with the
common market. In view of the nature and purpose of the aid, as well as the geographical
coverage, the Commission considers that subparagraphs (a), (b) and (c) are not applicable to the
scheme in question, nor have the United Kingdom authorities argued that this may be the case;

(b) Article 87(3) specifies other forms of aid which may be regarded as compatible with the
common market. In view of the nature and purpose of the measure and its geographical scope,
the Commission considers that subparagraphs (a), (b) and (d) of Article 87(3) are not applicable
either. The United Kingdom authorities endorse this view.

(37)

In assessing whether the exemptions provided for in Article 87(3)(c) can apply, the Court has consis-
tently held that Article 87(3) ‘gives the Commission a discretion the exercise of which involves
economic and social assessments that must be made in a Community context.’ (17) For certain types
of aid, the Commission has defined how it will exercise these discretionary powers, be it in the form
of block exemptions or by frameworks, guidelines or notices. Where such secondary texts exist, the
Commission must follow them in its assessment of cases of aid. The Commission should therefore
firstly establish whether the type of aid provided under the Stamp Duty Exemption Scheme falls
under one of these texts. Concerning compatibility with the following guidelines, frameworks or
regulations, as was previously mentioned at the opening of the procedure, the measure is not limited
to SMEs (18) or to firms in difficulty (19), nor to any of the following activities: research and develop-
ment (20), training aid (21) or employment (22). Therefore, none of these guidelines, frameworks or
regulations can be applicable to the present case. The Community Guidelines on State aid for envir-
onmental protection (23) is not applicable either, because the scheme, as such, is not designed for
environmental protection. However, it cannot be excluded that the present scheme may have a posi-
tive environmental impact as far as rehabilitation of polluted brownfield sites is concerned.

(14) See footnote 4.
(15) Case T-55/99 Confederación Española de Transporte de Mercancías (CETM) v. Commission (2000) ECR II-3207, paragraph

92.

(16) OJ L 10, 13.1.2001, p. 30.
(17) Case C-169/95 Kingdom of Spain v. Commission (1997) ECR I-135. See also C-730/79 Philip Morris v. Commission

(1980) ECR I-2671.

(18) Commission Regulation (EC) No 70/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC

Treaty to State aid to small and medium-sized enterprises, OJ L 10, 13.1.2001, p. 33.

(19) Community Guidelines on State aid for rescuing and restructuring firms in difficulty, OJ C 288, 9.10.1999, p. 2.
(20) Community Framework for State aid for research and development, OJ C 45, 17.2.1996, p. 5.
(21) Commission Regulation (EC) No 68/2001 of 12 January 2001 on the application of Articles 87 and 88 of the EC

Treaty to training aid, OJ L 10, 13.1.2001, p. 20.

(22) Guidelines on aid to employment, OJ C 334, 12.12.1995, p. 4.
(23) Community Guidelines on State aid for environmental protection, OJ C 37, 3.2.2001, p. 3.

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Compatibility with the Regional Aid Guidelines

(38)

The regions envisaged under the Guidelines on National Regional Aid are undoubtedly different
from those envisaged in the Stamp Duty Exemption Scheme.

(39)

The Guidelines on National Regional Aid are designated for particular regions. The notion of ‘region’
in these guidelines covers areas conforming to NUTS level III (24) or, in justified circumstances, to a
different homogeneous geographical unit. Furthermore, the individual regions, or groups of contig-
uous regions, must form compact zones, each of which must have a population of at least 100 000.
The Commission notes in this context that the Regional Aid Map for the United Kingdom (25) is not
based on NUTS III areas, but on the concept of ‘job opportunity zones’ each of which has a popula-
tion in excess of 100 000.

(40)

In contrast, the areas targeted by the Stamp Duty Exemption are isolated, microspatial areas, either
wards (NUTS V) or postal code areas, with an average population of 7 000.

(41)

The United Kingdom authorities agree that the Guidelines on national regional aid do not apply to
Stamp Duty Exemption, even though many of the selected disadvantaged wards do form part of the
regional aid map.

Compatibility with the Deprived Urban Area Guidelines

(42) At the opening of the procedure, the Commission took the view that the proposed scheme did not
meet the conditions of the Deprived Urban Area Guidelines (26), applicable at that time. Those
Guidelines, which did focus on microspatial areas, provided that, for aid to be approved, inter alia,
the total population covered by the deprived areas should not exceed 1 % of the total population
and that the only beneficiaries should be SMEs. As was stated in point 10, the amount of population
covered by the present scheme far exceeds 1 %. This point has not been contested by the United
Kingdom authorities, which agree that the former Deprived Urban Area Guidelines do not accom-
modate this kind of measure. It should in any event be noted that, after the opening of the proce-
dure, the Deprived Urban Areas Guidelines expired and the Commission issued a notice to that
effect (27).

(43)

(44)

In the light of what has been said above, the Commission concludes that the proposed scheme does
not fall within the scope and field of application of the existing guidelines, frameworks or regula-
tions developed on the basis of Article 87(3)(c). The Stamp Duty Scheme is focused on areas
deprived areas, for which there are, at present, no guidelines or frameworks.

The Commission notice on the expiry of the guidelines on State aid for undertakings in deprived
urban areas provides that the guidelines were so restrictive that they could not effectively be
used (28). However, following the Commission notice, failure to extend the guidelines does not imply
that State aid for deprived areas is no longer possible and, depending on the specific circumstances
of the proposed aid in question, it may be approved directly upon the basis of Article 87(3)(c).
Accordingly, the Commission will examine such cases in the light of Community objectives (29).

(24) Nomenclature of Statistical Territorial Units
(25) By letter SG (2000) D/106293 of 17 August 2000, the Commission approved the regional aid map for the period

2000-2006 (N265/2000).

(26) See footnote 8: the Guidelines expired five years after publication.
(27) The Commission notice on the expiry of the Guidelines for undertakings in deprived urban areas was published in

OJ C 119, 22.5.2002, p. 21.

(28) An OECD report provides that one of the obstacles to promoting the development of brownfield sites is the inflex-

ibility of policy and legislation. See OECD report, ‘Urban Brownfields’, 1998, DT/UA (98)8.

(29) Points 3 and 6 of the Commission notice on the expiry of the Guidelines for undertakings in deprived urban areas.

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Compatibility with Article 87(3)(c) of the EC Treaty

(45)

The Commission considers it appropriate to analyse therefore, first, whether the present scheme falls
within the Community's objectives and, secondly, whether trading conditions are adversely affected
to an extent contrary to the common interest.

T h e sc h e me i n th e l i g h t of Commu n i ty o bj e c t i v e s

(46)

(47)

(48)

It is to be recalled that economic and social cohesion is a Community objective, pursuant to Articles
2 and 3 of the EC Treaty. Strengthening economic and social cohesion implies, in particular, the
reduction of disparities between levels of development of different areas.

In this regard, both the Stockholm and the Barcelona conclusions of the European Council have
called for a reduction in overall aid levels and for the reorientation of aid towards objectives of
common interest, including economic and social cohesion objectives (30).

Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the
Structural Funds (31) provides that Community initiatives in the field of social cohesion should
encompass ‘…economic and social regeneration of cities and of urban neighbourhoods in crisis with
a view to promoting a sustainable urban development’. The Commission's Urban initiative, devel-
oped on the basis of that Regulation, aims at promoting physical and economic regeneration of
cities and neighbourhoods presenting structural problems. Although this initiative is focused upon
urban areas, the Commission has highlighted the merits of an integrated approach in order to favour
the synergy of urban and rural development (32). It can be inferred from the above that the Commu-
nity objective of achieving social and economic cohesion in the single market encompasses initia-
tives in the field of both rural and urban regeneration.

(49) As to these target areas of regeneration, the Commission, in a Communication of 14 June 2002
giving an initial assessment of the Urban Initiative (33), has recently acknowledged the existence of
such problem areas and recently defined them as ‘small areas of severe deprivation’. The Commis-
sion has stated that,
‘the multifaceted nature of urban deprivation necessitates an integrated
approach…and this is facilitated by the small sizes of the areas’ (34). In rural areas, similar considera-
tions apply, as exemplified by initiatives such as Leader + which ‘is intended for small rural terri-
tories, which form an homogenous unit in physical (geographical) economic and social terms’ (35). In
the light of these statements, the Commission considers that other areas can, when necessary, be
targeted for regeneration purposes.

(50)

The Commission notes that, in the present scheme, the areas targeted are small areas (microspatial
units) of severe deprivation. They have been selected on the basis of the indices of multiple depriva-
tion (IMD) which are based on elements such as low income, long-term unemployment, health
deprivation and disability, low level of education and of training, poor housing and geographical
access to services. These indicators have strong similarities to the indices adopted by the Commis-
sion in its Urban II program in order to identify target areas. These areas, according to the Commu-
nication on the Urban Initiative, must comply with at least three of the following criteria: a high

(30) The declarations of these European Councils are gathered in the Communication from the Commission to the
Council entitled, ‘Progress report concerning the reduction and reorientation of State aid’, Brussels 16 October 2002,
COM(2002) 555 final. In addition, the Commission has maintained that a harmonious development of Community
territory takes place against a background of greater economic integration: ‘this is the case for the interventions of
the Structural Funds, notably through their assistance to urban development in an integrated regional approach and
to rural development in its double role of contributing to the European agricultural model and to economic and
social cohesion.’ See Commission Communication concerning the Structural Funds and their coordination with the
Cohesion Fund — Guidelines for programmes in the period 2000 to 2006, OJ C 267, 22.9.1999, p. 2.

(31) OJ L 161, 26.6.1999, p. 1 (amended by Regulation (EC) No 1447/2001 (OJ L 198, 21.7.2001, p. 1)).
(32) Part 3 entitled ‘Urban and rural development and their contribution to balanced territorial development’, of the
Commission Communication concerning Structural Funds and their coordination with the Cohesion Fund: see foot-
note 30.

(33) See the Communication from the Commission to the Council, the European Parliament, the Economic and Social
‘The programming of the structural funds 2000-2006: an initial
Committee and the Committee of the Regions,
assessment of the Urban Initiative’, Brussels, 14 June 2002, COM (2002) 308 final. In addition, in its conclusions
the Commission has held that the approach developed under Urban and other Community initiatives have many
potential lessons for the future of European policy, including ‘a focus on relatively small areas which maximises
impact, as well as value for money’ (see page 6).

(34) Communication of 14 June 2002, page 7.
(35) Commission notice to the Member States of 14 April 2000 ‘laying down guidelines for the Community initiative for

rural development (Leader+)’, OJ C 139, 18.5.2000, p. 5 (point 14.1 on the areas concerned).

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level of long-term unemployment; a low level of economic activity; a high level of poverty and
exclusion; a specific need for conversion due to local economic and social difficulties; a high number
of immigrants, ethnic and minority groups, or refugees; a low level of education, significant skills
deficiencies and high drop-out rates from school; a high level of criminality and deficiency; precar-
ious demographic trends or a particularly run-down environment (36).

(51) As was mentioned in the description of the proposed scheme (point 10), the average proportion of
‘hardcore’ brownfield sites in the targeted areas are two and a half times that of other areas. It is
widely acknowledged that urban and rural decline and the loss of functions as a result of decline in
traditional industrial sectors have left sites derelict and contaminated. The Commission notes that
there is data showing that the United Kingdom is the Member State with the second-highest esti-
mated number of sites requiring remediation (37). By their very nature, the sites for which remedia-
tion is required are usually those posing the greatest environmental danger (38). The Expert Group
on the European Environment advising the Commission has also highlighted the environmental
threat that brownfield sites may cause, especially if they are contaminated (39).

(52)

Brownfield sites have been described by the OECD as, ‘that which is, or is likely to be, contaminated
as a result of former industrial commercial or governmental operations’ (40).

(53) At the Community level, rehabilitation of brownfield sites is in conformity with both environmental
policies and regional objectives. This is reflected in documents such as the communication on the
Urban programme, which aims, inter alia, at redeveloping mixed use and environmentally friendly
brownfield sites (41). By the same token, the Commission Communication concerning Structural
Funds and their coordination with the Cohesion Fund provides: ‘Priority should be given to the reha-
bilitation of derelict industrial sites (brownfields) over the development of greenfield sites’ (42). The
Commission, in a decision of 25 July 2001 concerning a regeneration scheme, acknowledged that,
‘the scheme would promote environmental concerns, notably a more rational use of natural
resources such as land’ (43). The Community interest in brownfield sites has also been recognised by
third-party organisations. In its report on urban brownfields, the OECD has acknowledged that the
Community is concerned with regeneration and that it plays a particularly important role in relation
to the regeneration of brownfield sites, even if, so far ‘(it has been) more concentrated towards assis-
tance and redevelopment projects and funding and not remediation per se’ (44).

(54) When the proposed scheme promotes rehabilitation of polluted industrial sites, the aid granted
could be in line with the provisions of the Community Guidelines on State aid for environmental
protection (45). The Commission finds that, in these cases, it is possible that the aid will be an incen-
tive for the cleaning-up of polluted sites.

(55) One of the characteristics of the deprivation of the target sites — and in particular brownfield sites
— is that there are six times fewer property transactions in these areas than in the remainder of the
United Kingdom. Regeneration sites seem invariably to be in areas where the local land and property
market has either collapsed or operates at a very low level.

(36) See point 2.1 of the Communication.
(37) See the Fourth KfK/TNO Symposium on Remediation of Contaminated Sites, Berlin 1993. In accordance with these
data, United Kingdom has an estimated number of contaminated sites of 100 000 and 30 000 sites requiring reme-
diation. The highest was Germany due to the specific regeneration problems prevailing in the new Länder.

(38) See OECD document in supra, note 28.
(39) See Expert Group on the European Environment: Towards a More Sustainable Urban Land Use: Advice for the

European Commission for Policy and Action, 2001.

(40) See the OECD report,

‘Urban brownfields’, 1998. Other definitions are:

‘any land or premises that have been
previously used or developed and is not currently fully in use, although it may be partially occupied or utilised. It
may also be vacant, derelict or contaminated. Therefore, a brownfield site is not necessary available for immediate
use without intervention.’ More generally, brownfield has been defined as ‘a land and/or buildings, urban or rural
that have previously been developed, but are not currently in use. It can also be partially occupied, contaminated or
derelict’. See Journal of Environmental Planning and Management. V43 (1), pp 49 to 69: January 2000.

(41) This encompasses, inter alia, measures in the field of reclamation of derelict sites and contaminated land as well as
renovation of buildings to accommodate economic and social activities in a sustainable and environmentally friendly
manner.

(42) Under heading C: ‘Areas with particular potential: environment, tourism and culture, social economy’.
(43) State aid N 82/2001 – English Cities Fund: OJ C 263, 19.9.2001, p. 5, at p. 11.
(44) See page 21 of the OECD document entitled ‘Urban regeneration’ (1998).
(45) Point E.1.8: ‘Rehabilitation of polluted industrial sites’.

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(56) As a regeneration instrument, the stamp duty exemption could fulfil the economic rationale of
contributing to reducing risks for investors in brownfield sites. Regeneration has traditionally been
perceived as a high-risk, low-return investment, in particular because there is the perception of weak
market demand; bureaucratic grant arrangements; unclear procedures in the programmes; and a lack
of funding initiatives. Favourable conditions for investment include a perceived total return as well
as new business opportunities, transparent exit strategies and the level of risk in the project (46).

(57)

It is only when the risk is reduced that investment will increase: this would have several spin-off
effects such as reducing the exit-costs, which in turn will further reduce the risks of investing in
urban regeneration. The temporary exemption of the stamp duty is likely to contribute to activating
the market for regeneration and derelict land in deprived areas as well as having spill-over effects.
The system itself would be transparent and easy to administer, which matches market demands.

(58)

Recent studies demonstrate that, based on past experience, it is extremely unlikely that private-sector
involvement in remediation can be expected if there is no public-sector role. This same experience
shows that pump-priming brownfield site projects with public funds does stimulate private sector
investment (47). At the Commission level, this has been acknowledged by the Commission notice on
the expiry of the Guidelines on State aid for undertakings in deprived urban areas (48).

(59)

The Commission endorses the view that to optimise regeneration projects, the public sector role
should support measures that are part of an integrated approach tackling the different aspects of
severe deprivation. Commission initiatives (49) have highlighted that
involves a
package of operations that combine the rehabilitation of obsolete infrastructure with economic and
labour-market actions complemented by measures to combat social exclusion and to upgrade the
quality of the environment’ (50). The declared objective of the Urban initiative is ‘to tackle the
problem of urban deprivation in a holistic way’ (51). The need for a holistic approach in the treatment
of regeneration and more particularly, urban brownfields, is consistent with the efforts to promote
sustainable development following the United Nations 1992 Rio de Janeiro summit and its 1996
Istanbul summit, and accords with the implementation of Agenda XXI on Sustainable Develop-
ment (52). This holistic approach is also based on the assumption that environmental and regenera-
tion policies are deeply intertwined.

‘(regeneration)

(60)

The Commission notes that the ‘Stamp Duty Exemption for Disadvantaged Areas’ is conceived as a
part of a global strategy tackling deprivation from different angles and on different fronts —
including environmental and social-exclusion objectives. In this regard, the Commission notes that
the exemption scheme is part of a wider, coherent programme aimed at regenerating deprived areas.
The United Kingdom authorities have therefore adopted a holistic approach.

(46) Accessing private finance: the availability and effectiveness of private finance in urban regeneration, Royal Institution

of Chartered Surveyors, 2002.

(47) See in particular the OECD report entitled ‘Urban Regeneration’, 1998.
(48) See point 6 of the notice: ‘The Commission recognises that, in some instances, market forces alone appear to be
inadequate to resolve or alleviate the social and economic problems of deprived areas’ (see footnote 27). This was
also pointed out by the former Deprived Urban Area Guidelines in point 1.

(49) By the same token, the European Parliament in its resolution Urban II, ‘stresses the need for an integrated approach
to urban policy as currently this looks to be the only way to address economic, social and environmental problems
in urban zones.’ A particular concern of the Parliament was that, ‘immigrants, refugees and ethnic minorities are
often particularly affected by social exclusion.’ See OJ C 339, 29.11.2000, p. 47.

(50) Communication from the Commission to the Member States of 28 April 2000 laying down guidelines for a
Community initiative concerning economic and social regeneration of cities and of neighbourhoods in crisis in order
to promote sustainable urban development (URBAN II): OJ C 141, 19.5.2000, p. 8.

(51) See footnote 50. Emphasis added.
(52) See the OECD document entitled ‘Urban Brownfields’, 1998.

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A f fe c t o n t r a d e t o a n e x t e n t c ont r a r y t o th e c om m on i n t e r e st

(61)

(62)

The Commission notes that the standard bases for regional aid in the United Kingdom, following
the Regional Guidelines are 10 % for land and 20 % for buildings (53), that is to say, a maximum aid
level of 30 %. The intensity of aid that could be granted under the proposed scheme is between 1 %
and 4 %. If related to the standard basis, the aid would only represent between 0,3 % and 1,2 % of
the entire investment. In the light of this comparison, trade and competition would only be distorted
to a small extent.

The average amount of aid to the individual undertakings in the proposed scheme is GBP 50 000
(around EUR 78 500 (54)). Aid of this magnitude does not normally distort or threaten to distort
competition. In cases where a beneficiary receives the stamp duty exemption several times, or
receives it cumulated with other kinds of aid, the aid could be significant and thus affect competition
and/or affect trade. It is therefore imperative that the cumulation of aid is closely monitored and
controlled.

(63)

The Commission finally notes that the parties that have submitted their comments following the
opening of procedure have claimed that the distortion of competition and the adverse effect on trade
may not be to an extent contrary to the common interest.

VII. CONCLUSIONS

(64)

(65)

In the analysis conducted above it is found that no framework, guidelines or regulations apply to
the scheme proposed; therefore, the Commission has considered it appropriate to examine it directly
on the basis of Article 87(3)(c). It can be concluded that the proposed scheme would fall within the
Community objectives of economic cohesion and sustainable development, and that the scheme
would not adversely affect trading conditions to an extent contrary to the common interest.

Because the scheme falls outside the usual frameworks, guidelines and regulations, the Commission
considers it appropriate to impose a number of conditions: cumulation with other investment aid
above the ceilings applying to normal
investment aid must be excluded; monitoring must be
ensured; annual reports must be submitted; the beneficial effects of the scheme on physical regenera-
tion — and notably on brownfield sites — have to be demonstrated. The duration of the scheme
should be limited to the end of 2006, as after that year new rules will apply to both State aid and
structural funds,

HAS ADOPTED THIS DECISION:

Article 1

The aid scheme called ‘Stamp Duty Exemption for Disadvantaged Areas’ is compatible with the common
market pursuant to Article 87(3)(c) of the EC Treaty, provided that the conditions set out in Article 2 are
met.

Article 2

1.
The United Kingdom shall ensure that any cumulation of aid awarded under the scheme with invest-
ment aid awarded under other aid schemes does not exceed the aid ceilings laid down in the regional aid
map for the United Kingdom for 2000 to 2006 and in Regulation (EC) No 70/2001.

(53) OJ C 74, 10.3.1998, p. 6.
(54) See footnote 4.

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2.

The scheme shall be limited in time until 31 December 2006.

Any continuation of the scheme after that date shall be notified to the Commission pursuant to Article
88(3) of the Treaty.

3.

The United Kingdom shall submit annual reports on the operation of the scheme to the Commission.

The degree of detail of the reports shall be such as to allow an evaluation of the effects of the scheme on
the physical regeneration of the areas which benefit from it.

The United Kingdom shall inform the Commission, within two months of notification of this Decision, of
the measures taken to comply with it.

Article 3

This Decision is addressed to the United Kingdom of Great Britain and Northern Ireland.

Article 4

Done at Brussels, 21 January 2003.

For the Commission

Mario MONTI

Member of the Commission