State aid — United Kingdom — Aid C 7/03 (ex N 107/02) — SBS Incubation Fund — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty (Text with EEA relevance)
Date: 2003-04-30
Institutions: European Commission
Subjects: State aid, United Kingdom, aid system, aid to undertakings, establishment, exchange of information, loan, small and medium-sized enterprises

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STATE AID — UNITED KINGDOM

Aid C 7/03 (ex N 107/02) — SBS Incubation Fund

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty

(2003/C 104/02)

(Text with EEA relevance)

By means of the letter dated 5 February 2003 reproduced in the authentic language on the pages following
this summary, the Commission notified the United Kingdom of its decision to initiate the procedure laid
down in Article 88(2) of the EC Treaty concerning the abovementioned aid.

Interested parties may submit their comments within one month of the date of publication of this
summary and the following letter, to:

European Commission
Directorate-General for Competition
State Aid Greffe
J-70
B-1049 Brussels
Fax (32-2) 296 12 42.

These comments will be communicated to the United Kingdom. Confidential treatment of the identity of
the interested party submitting the comments may be requested in writing, stating the reasons for the
request.

SUMMARY

1. Procedure

the British authorities notified the

By letter dated 31 January 2002, registered on 4 February
2002,
aid measure
mentioned above, pursuant to Article 88(3) of the EC Treaty.
By letter dated 28 February 2002, the Commission requested
additional information, which was supplied by the British auth-
orities by letter dated 26 April 2002, registered on 30 April
2002. The British authorities provided new elements and
arguments concerning the notification by letter dated 13 May
2002. On 24 May 2002, a meeting was held between the
British authorities and the Commission, which was followed
by a new letter of request of
information, sent on 4 July
2002, and a meeting with a member of the United Kingdom
representation on 29 August 2002. The British authorities
replied by letter dated 13 September 2002, registered on 18
September 2002. This letter raised new issues, which led to
another letter of request of information from the Commission,
dated 29 October 2002, and to another meeting with a
member of
the United Kingdom representation on 14
November 2002. The British authorities sent their reply on 3
December 2002, and it was registered on 9 December 2002.

Incubators are premises

specifically
the United Kingdom.
for SMEs in
designed to provide a nurturing environment
their start-up or early phase. The aim of
this scheme is
therefore to provide loans to firms that want to set up or
thus assisted will
develop an incubator. The incubators
provide offices for SMEs.

the assistance
The United Kingdom authorities claim that
to these loans will be limited to the
provided thanks
minimum necessary, as assessed by independent experts.
In
specific cases, when the property is in public ownership, the
United Kingdom authorities indicated that they may use public
tenders in order to grant the aid and limit it to the minimum
necessary. These loans will be granted on condition that the
applicant has been turned down, in part or in full, by private
capital markets. The interest rate of these loans will be set at
6 %, which happens to be very close to the Community
reference rate (at present 6,01 %). They will cover between
30 and 50 % of
the site purchase and construction costs.
They may also cover the initial marketing of development
for tenants and up to 25 % of the project's total working
capital requirement during the set-up stage.

2. Description of the measure

this scheme, which will have a GBP 75
The objective of
million budget
is to foster the devel-
opment of incubators for small and medium enterprises in

(EUR 115,5 million)

specialised in the business

the loans can be property developers,
The beneficiaries of
sectors or
companies
non-profit making organisations. There will be no limitation
on the location of the project: the British authorities asked for
the possibility of granting these loans to projects in assisted as
well as non-assisted areas,
the
borrower operating the incubator is a large firm or a SME.

independently of whether

support

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The United Kingdom authorities have not made any specific
commitments with respect to the intensities of the aid provided
under these loans. They have only committed themselves to
limit the aid to the minimum necessary for the project to go
ahead, as assessed by independent experts. Furthermore, they
have asked for the possibility to top up the aid element to this
loan with other sources of
funding up to this minimum
necessary threshold.

3.2. Assessment of the aid measure: As far as aid to the end-users
of the incubators is concerned, the United Kingdom auth-
orities have undertaken to ensure that this aid at the level
of the end-users is provided in accordance with Regu-
lation (EC) No 69/2001 on de minimis aid.

At the same time, the United Kingdom authorities reckon that
the main target of this measure are the SMEs that will have
access to these supported incubators. They claim that
the
incubators will normally provide these premises at market
rate to these end-users.
In order to ensure that this is the
case,
independent experts will ensure that the rents paid by
the end-users are set at market rate. Any difference between
the rate actually paid and market levels will be counted as de
minimis aid, in conformity with Commission Regulation (EC)
No 69/2001.

far as aid to the undertakings establishing the
As
incubators is concerned, the Commission has found that
they cannot be exempted on the basis of the Community
guidelines on national regional aid or Commission regu-
lation (EC) No 70/2001, which are the only two possible
legal bases for an exemption of this scheme. First of all,
these loans may cover part of
the working capital
set-up stage, which may
during
requirement
constitute
the United
operating
Kingdom authorities have not committed themselves to
respect the thresholds for the aid intensities set by the
guidelines on national regional aid and regulation (EC) No
70/2001. They have also asked for the possibility to grant
aid to large firms in non-assisted areas. Finally, the rules
on cumulation are not very clear.

Furthermore,

the
aid.

3. Assessment of the measure

3.1. Existence of aid: The loans granted under this scheme will
have an interest rate of 6 %, which is very close to the
current Community reference for the United Kingdom of
6,01 %. However, given that one of the main conditions
for granting the loans under this scheme is that
the
borrower could not get loans from commercial lenders,
the Commission believes that there is an element of aid in
these loans. The securities normally required by banks are
not provided, and were private banks willing to provide
loans for part or all these projects, they only would do so
at a higher rate. The Commission believes that these loans
may constitute an aid to the borrowers, within the
meaning of Article 87(1) of the EC Treaty.

Since this aid measure cannot be exempted under existing
rules, the United Kingdom authorities have put forward a
ground for exemption based on the Communication on
State aid and risk capital, which states that
‘where a
transfer made by the State would be compatible with
the Commission believes that a
the State aid rules,
measure which provides
the minimum incentive to
other economic operators to make that same transfer
should also be authorised, even if technically, an aid to
those operators is involved’ (1). They argue that, since the
aid to the end-users of the incubators is a compatible
transfer (the aid at their level
is de minimis), and since
the incentive given to the borrowers to provide these
then the aid to the borrowers
incubators is minimal,
should be authorised.

is so even where the beneficiary of

It
the loan is a
non-profit undertaking. Contrary to the argument put
forward by the United Kingdom authorities,
the fact
that the borrower is a non-profit making institution is
not relevant for the application of State aid rules if it
carries out an economic activity, open to competition.

Finally, thanks to these loans, the borrowers will establish
and operate incubators for the benefit of SMEs. It cannot
be excluded that the part of the aid assistance provided by
the State to the establishment of these incubators may be
passed to the end-users, for instance under the form of
lower rents. As a result, this measure may also constitute
a State aid within the meaning of Article 87(1) of the EC
Treaty at the level of the end-users of the incubators.

It

case.

The Commission applied this provision of the risk capital
Communication to the property development sector in
one
concerned aid provided to property
developers in order to encourage them to rehabilitate
and provide social housing (2). It appears, however, that
the use of this reasoning outside the scope of State aid to
risk capital may have far-reaching consequences. For
instance, as in the present case, this reasoning could be
used to bypass existing State aid rules, as currently laid
down in the
existing block exemption regulations,
frameworks and guidelines. It would also give Member
States an incentive to start distributing aid through inter-
mediaries, which would become recipients of aid them-
selves.

(1) Point V.6. of the Communication on State aid and risk capital (OJ C

235, 21.8.2001, p. 3).

(2) Case N 497/01, Grants for Owner Occupation Scheme.

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this provision be confirmed,

In these circumstances, it is necessary for the Commission
to reflect on the opportunity of confirming the use of this
provision of the Communication on State aid and risk
capital outside its specific scope. Furthermore, should
is
the wider use of
equally necessary to lay down the precise conditions of
application of this principle, especially in areas that, like
property development, are so different from risk capital,
and to determine whether the present case fulfils these
conditions. On that point, the Commission notes that the
British authorities have not provided enough information
showing that the aid given to the intermediary to provide
the incubator is indeed the minimum necessary.

it

4. Conclusion

In the light of the foregoing considerations, on basis of the
information available,
the preceding preliminary
assessment, the Commission decided to initiate the proceedings
according to Article 88(2) of the EC Treaty. In accordance with
Article 14 of Council Regulation (EC) No 659/1999, all
unlawful aid can be subject to recovery from the recipient.

and of

TEXT OF THE LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the aid referred to above,
it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

1. PROCEDURE

By letter dated 31 January 2002, registered on 4 February
2002, under number A/30819, the British authorities notified
the aid measure mentioned above, pursuant to Article 88(3) of
the EC Treaty.

By letter dated 28 February 2002, registered under number
D/50891, the Commission requested additional
information,
which was supplied by the British authorities by letter dated
26 April 2002, registered on 30 April 2002 under number
A/33211. The British authorities provided new elements and
arguments concerning the notification by letter dated 13 May
2002, registered under number A/33676 on 21 May 2002.

On 24 May 2002, a meeting was held between the British
authorities and the Commission, which was followed by a
new letter of request of information, sent on 4 July 2002
and registered under number D/53508 and a meeting with a
member of
the United Kingdom Permanent Representation
which was held on 29 August 2002. The British authorities
replied by letter dated 13 September 2002, registered under
number A/36758 on 18 September 2002.

This letter raised new issues, which led to another letter of
request of
information from the Commision, dated 29
October 2002, registered under number D/56098, and to

the United Kingdom
another meeting with a member of
Permanent Representation on 14 November 2002. The
British authorities replied by letter dated 3 December 2002,
registered on 9 December 2002 under number A/39062.

2. DESCRIPTION OF THE MEASURE

2.1. Title and legal basis

The title of this aid scheme is SBS Business Incubation
Fund. It will be operated across all the English regions by
the Small Business Service of the Department of Trade
and Industry, on the basis of Section 8 of the Industrial
Development Act of 1982.

2.2. Objective of the measure

The objective of this scheme is to foster the development
of incubators for small and medium enterprises in the
Incubators are premises specifically
United Kingdom.
designed to provide a nurturing environment for SMEs
in their start-up or early phase. The firm that operates
the incubator not only provides offices with specific
equipment (e.g. broadbands), but will also provide ‘incu-
bation services’, such as mentoring, access to finance,
peer group support, etc.

failure’

The United Kingdom authorities argue that there is a
‘market
these incubation
in the provision of
services for SMEs. The number of new incubators is
constrained by the lack of experienced managers of
such facilities. There is a number of existing business
they tend to focus on the perceived
incubators, but
lowest risk classes of entrepreneurs or on potentially
high-growth companies, where an equity stake is often
taken to secure high returns in cases of success. This
leaves the medium-risk, medium start-ups with few
facilities on offer. In this context, it is claimed that the
the
commercial
borrowing requirement, or to lend at all
into riskier
incubation projects.

financiers are less likely to lend all

The aim of this scheme is therefore to provide loans to
firms that want to set up or develop an incubator. These
loans will act as an investment incentiviser for projects
that were turned down, in part or in full by the private
sector. The incubators thus assisted will provide offices
for SMEs.

2.3. Mechanisms for granting the loans

The United Kingdom authorities claim that the assistance
provided thanks to these loans will be limited to the
minimum necessary. This minimum necessary will be
assessed by independent experts,
including chartered
surveyors. A claw-back mechanism (repayment of part
of the aid) will be applied when a situation of overcom-
pensation is identified after the project is completed.

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in public
In specific cases, when the property is
the United Kingdom authorities indicated
ownership,
that
conducted in
accordance with the EC rules on public procurement
where such rules are deemed to apply.

they may use public

tenders,

2.4. Characteristics of the loans

These loans will have the following characteristics:

— As already explained,

granting a loan is that
been turned down,
capital markets.

the main conditions
for
the applicant must have
in part or in full, by private

— The interest rate of these loans will be set at 6 %,
subject to annual review, with the right to change if
the base rate varies upwards by more than 1 %.
the
According to the British authorities,
interest
that
succeeded in obtaining private financing. It should
be noted that this interest rate happens to be very
close to the Community reference rate (at present
6,01 %).

is
few projects

applied in the

rate

this

2.6. Beneficiaries

the

loans

The beneficiaries of
can be property
developers, or companies specialised in the business
support
sector, without any limitations concerning
their size. The beneficiaries may also be non-profit
making beneficiaries, such as higher educational
insti-
regeneration partnerships
tutions,
and
development
agencies. Large firms as well as SME will be eligible
for these loans.

enterprises,

established

regional

bodies

social

by

At the same time, the United Kingdom authorities admit
that the main target of this measure are the SMEs that
will have access to these supported incubators. They
claim that the incubators will normally provide these
premises at market rate to the end-users. In order to
ensure that this is the case,
independent experts and
chartered surveyors will ensure that the rents paid by
the end-users are set at market rate. The loan conditions
will include a requirement for the borrower to inform
each end user that if the actual rent paid by the end-user
is below market level, this will be counted as de minimis
to the requirements of Commission
aid, and subject
regulation (EC) No 69/2001. Any amount in excess of
an amount provided for in the latter regulation will have
to be paid back by the beneficiaries.

— Securities will be required whenever possible. The
United Kingdom authorities reckon that securities
will not always be available.

2.7. Scope

— A capital repayment holiday will be offered until the
completion of the project. Applicants will have an
option to roll-up interest
capital
repayment holiday.

during

the

— The repayment of the loan will typically be over 10

years, but may be up to 20 years.

2.5. Eligible costs

There will be no limitations concerning the location of
the projects: the British authorities ask for the possibility
of granting these loans to projects in assisted as well as
non-assisted areas,
the
borrower
that will operate the incubator will be a
large firm or a SME.

independently of whether

No projects
fisheries and
involving the agricultural,
transport sectors will be eligible for loans. Any project
involving the synthetic fibres, steel, shipbuilding and
motor vehicle sectors will be notified individually.

The loans will cover between 30 and 50 % of
following costs:

the

— Site purchase and construction costs, or building
purchase and refurbishment costs. All
land and
property costs will be assessed by independent
Chartered Surveyors.

2.8.

Intensities

The United Kingdom authorities have not made any
specific commitments with respect to the intensities of
the aid provided under these loans. They have only
committed themselves to limit the aid to the minimum
necessary for the project to go ahead, as assessed by
independent experts.

— Fixtures and fittings equipement.

2.9. Cumulation

— Associated professional fees.

— Initial marketing of development for tenants.

— In some cases, up to 25 % of

the project's total
set-up
limited to the time scale for completion of
rental

working capital
stage,
the project development and receipts of
income.

requirement during the

the project

to go ahead,

In situations where the loans provided under this scheme
are not sufficient to provide the estimated minimum
necessary for
the United
Kingdom authorities have asked for the possibility to
top up the aid element to this loan with other sources
of funding (for instance the Single Regeneration Budget
or the ERDF), up to this minimum necessary threshold.
The United Kingdom authorities have not provided any
further indication on this additional aid, nor committed
themselves to notify it when they want to grant it in
addition to the loans described above.

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In order to calculate the aid element of these loans with
the view of cumulating it with additional aid, the British
authorities have agreed to calculate the net grant
equivalent of these loans in accordance with Annex I
of the Community guidelines on national regional aid.
They agreed to use as reference rate the Community rate
plus 400 basis points,
in application of Commission
notice on the method for setting the reference and
discount (3), which recommends
such a
reference rate where the security normally required by
banks for a loan is not provided.

the use of

2.10. Budget and duration

An initial GBP 75 million will be available across four
from the
financial
Commission to cover
the end of
March 2006.

the period until

years. Clearance

requested

is

3. PRELIMINARY ASSESSMENT OF THE MEASURE

According to Article 6 of the Procedural Regulation (4), the
decision to initiate the formal
investigation procedure shall
summarise the relevant issues of fact and law, shall include a
the Commission as to the aid
preliminary assessment of
the
the proposed measure, and shall set out
character of
doubts as to its compatibility with the common market.

3.1. Existence of aid under Article 87(1) of the EC Treaty

Under Article 87(1) of the EC Treaty, ‘any aid granted by
a Member State or through State resources in any form
whatsoever which distorts or
to distort
competition by favouring certain undertakings or the
production of certain goods shall,
insofar as it affects
trade between Member States, be incompatible with the
common market’.

threatens

3.1.1. Aid to the undertakings establishing and operating the

incubators

of

that

least

State

resources.

they may

Furthermore,
constitute

in certain circumstances. First,

It is not contested that the present aid measure will be
the
funded
out
Commission believes
an
advantage to the undertakings that are granted these
loans. This point is contested by the United Kingdom
the
authorities, at
British authorities have argued that these loans' interest
rates will be set at 6 %, while the current Community
reference for the United Kingdom is 6,01 %.
In that
case,
they argue that when the borrower can provide
full security for the loan, the rate is almost identical to
the Community reference rate, and therefore the aid
element in the loan is negligible. The Commission has
doubts concerning such an argument: one of the main
conditions for granting the loans under this scheme is

(3) OJ C 273, 9.9.1997.
(4) Council Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty (OJ L 83, 27.3.1999, p. 1).

that the borrower could not get loans from commercial
lenders, for the totality or at least for part of the funding
of the project. In this context, the Commission believes
that the securities normally required by banks are not
provided, and that, were the banks willing to provide
loans for part or all the project, they would do so at a
higher rate. Consequently, and again because the bene-
ficiaries of these public loans, by definition, could not
get private financing, the Commission believes that these
loans constitute an advantage, which is selective since
only a limited number of firms will benefit from them.
Furthermore, beneficiaries of these loans are undertakings
involved in property development and/or business service.
These activities are likely to be internationally traded. This
aid measure may therefore have an effect on competition
and trade between Member States.

(such as

education in the

since such organisations

The British authorities also claimed that the loan cannot
constitute a State aid when the beneficiary is a non-profit
undertaking,
lack the profit
motive and will recycle any profit back into their public
case of
good activities
universities). Their motivation is not
to develop new
business or to undermine commercial operators in any
way. As a result, they argue that this assistance provided
under this scheme to non-profit organisation is unlikely to
distort competition, and does not constitute a State aid
within the meaning of Article 87(1) of the EC Treaty. It is
the Commission to retain such an
not possible for
argument.
organisations would
undertake economic activities, i.e. the establishment and
operation of an incubator providing accommodation and
services to SMEs. This economic activity is also carried out
by private firms. These non-profit making institutions
must
this
specific activity, undertakings within the meaning of
Article 87(1) of the EC Treaty. The fact that the moti-
vation of these institutions is not to make a profit nor to
undermine competitors is not relevant: what matters is the
effect of their activity, which is, in the present case, of a
services will be
In addition,
clear economic nature.
provided in a competitive environment.

therefore be considered,

in the context of

non-profit

These

Finally, the British authorities put forward the argument
that
these incubation services could be seen as infra-
structure, on the ground that these incubators would be
of a general benefit to a range of undertakings and would
be available to SMEs on a non-discriminatory basis.
Furthermore,
the firms providing these ‘infrastructures’,
i.e. the incubators, would receive no overcompensation,
since they will only receive the minimum necessary to
provide and start operating this facility. The Commission
has strong doubts about such an argument which would
greatly
to
situations which are clearly commercial and benefit a
very specific and very limited category of users (i.e.,
in
the present case, SMEs in their start-up phase and in need
of incubation services). Furthermore, for reasons that will
the
be
Commission is not convinced at
the
procedure that the aid is limited to the minimum and
that there is no overcompensation.

further below,
stage of

explained in greater detail

extend the definition of

‘infrastructure’

this

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Given that this measure, granted through State resources,
seems to give a selective advantage to the beneficiaries of
these loans, and given that this advantage may distort
competition and affect
the
Commission can conclude that it may constitute a State
aid to these undertakings within the meaning of Article
87(1) of the EC Treaty.

inter-Member State trade,

during the set-up stage, until receipts of rental income.
These loans may therefore constitute, at least in part,
operating aid,

— the rules on cumulation remain unclear,

3.1.2. Aid to the end-users of the incubators

Furthermore, thanks to these loans, the borrowers will
establish and operate incubators for the benefit of SMEs.
Despite the claim that these end-users will be charged
it cannot be excluded that the assistance
market prices,
provided by the State for the establishment of
these
incubators may result
in lower rents charged to the
end-users. This would constitute a selective advantage,
which could affect inter-Member State trade since these
end-users may engage in activities affecting international
trade. As a result, this measure may also constitute a State
aid within the meaning of Article 87(1) of the EC Treaty,
at the level of the end-users of the incubators.

3.2. Assessment of the aid measure

the SBS Incubation Fund may
Having established that
involve State aid within the meaning of Article 87(1) of
it is necessary to consider whether this
the EC Treaty,
scheme
compatible with the
can be
common market.

found to be

the United Kingdom authorities

the incubators is
As far as aid to the end-users of
have
concerned,
the aid at the level of the
undertaken to ensure that
end-users
is provided in accordance with Regulation
(EC) No 69/2001 on de minimis aid. At this stage, it is
not entirely clear by which means this could be ensured.

As far as aid to the undertakings that will establish and
operate the incubators, the Commission notes that the
loans that they will get are provided in order to support
the creation of incubators and essentially constitute an
investment aid. Therefore this aid measure should be
analysed under the Community guidelines on national
aid (5) or Commission Regulation (EC) No
regional
70/2001 (6). No other Commission's legal text seems to
be relevant for the analysis and possible exemption of this
aid measure. It does not seem however that the guidelines
on national regional aid and Commission regulation (EC)
No 70/2001 can be used to exempt this aid measure:

— these loans will essentially cover investment costs (site
and building purchase,
construction and refur-
bishment, costs, specific equipment, etc.) but also the
initial marketing development for tenants and up to
25 % of the project's total working capital requirement

for

to respect

the thresholds

— the United Kingdom authorities have not committed
the aid
themselves
intensities set by the guidelines on national regional
aid and regulation (EC) No 70/2001. They only
committed themselves not
to give more than the
‘minimum necessary’ for the project to go ahead, as
assessed by independent
experts. This minimum
necessary may be more than would be allowed
under Regulation (EC) No 70/2001 or the guidelines
on national regional aid,

— the United Kingdom authorities have asked for the
located
for projects
possibility of granting loans
anywhere in England,
irrespective of the size of the
borrower. This may result in providing loans to large
firms in non-assisted areas, within the meaning of the
Community regional map.

that

these reasons,

the Commission can provisionally
For
conclude that
this aid measure cannot be approved
under existing rules. As a result, the United Kingdom
authorities have put
forward a ground for exemption
based on the Communication on State aid and risk
capital (7). This communication states
‘where a
transfer made by the State would be compatible with
the State aid rules,
that a
the minimum incentive to
measure which provides
other economic operators to make that same transfer
should also be authorised, even if technically, an aid to
those operators is involved’ (8). It is therefore argued that,
since the aid to the end-users of
the incubators is a
compatible transfer (the aid at their level is de minimis),
and since the incentive given to the borrowers to provide
these incubators is minimal, then the aid to the borrowers
should be authorised.

the Commission believes

The application of this principle to the property devel-
opment sector was accepted once by the Commission in
the case N 497/01 Grants for Owner Occupation Scheme.
That case concerned aid to property developers in order
to encourage the rehabilitation and provision of private
housing. Since there was no aid at the end level (housing
for private individuals) and since the aid to the developer
was the minimum necessary, the Commission concluded
that the scheme could be exempted under Article 87(3) of
the EC Treaty, in application of this provision of the risk
capital Communication. That case was in many ways a
specific one, since the end user and real target of the
measure was not an enterprise but private individuals
seeking access to social housing while in the present
case, the targeted recipients are start-up companies.

(5) OJ C 74, 10.3.1998, p. 9.
(6) OJ L 10, 13.1.2001, p. 33.

(7) OJ C 235, 21.8.2001, p. 3.
(8) Idem, point V.6.

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as

laid

this

existing

currently

down in

in assisted as well as non-assisted areas.

far-reaching conse-
reasoning has
Furthermore,
quences. Such a reasoning could give Member States an
incentive to start distributing aid through intermediaries,
which would become recipient of aid themselves. This
reasoning could also be used to bypass the State aid
rules,
block
exemption regulations, frameworks and guidelines. This
is clearly the case under this scheme, since accepting
this reasoning would enable the British authorities to
provide these soft loans to any firms, whether SMEs or
large ones,
It
would also empower them to provide the ‘minimum
to go ahead, which may
necessary’
imply that,
intensities
the
allowed under the regional map or Regulation (EC) No
70/2001 will be exceeded. In these circumstances,
it is
necessary for the Commission to reflect on the oppor-
tunity of using this reasoning outside the specific scope
the Communication on State aid and risk capital.
of
Furthermore, should the wider use of this reasoning be
confirmed, it is equally important to lay down its precise
conditions of application, especially in areas that,
like
property development, are so different from risk capital.

in certain circumstances,

for each project

ahead would seem to be a call for tender. However, the
United Kingdom authorities have acknowledged that this
procedure will be limited to situations where the land on
which the incubator is to be developed is in public
ownership and is consequently unlikely to be used to
any great extent. In the other, more frequent, situations,
the United Kingdom authorities only indicate that inde-
pendent experts including chartered surveyors will analyse
project in line with local market conditions in order to
support necessary.
determine the minimum level of
Despite the requests of the Commission, they have not
the criteria that
provided any detailed explanation of
will be taken into account by these experts or
the
method that will be used (e.g. gap funding).

To summarise, at this stage, the Commission has doubts
concerning the applicability of
the
Communication on State aid and risk capital to situations
falling outside its scope. Furthermore, if this reasoning is
found to be
the
Commission has doubts as to whether the present aid
scheme fulfils its conditions of application.

this provision of

in the present

applicable

case,

the intermediary to transfer

the risk capital Communication,

On the specific question of the criteria of application of
this provision of
the
Commission notes that one of them is that the incentive
that aid should be
for
minimal. On that point, the United Kingdom authorities
have not provided any satisfactory evidence on how they
intend to calculate this ‘minimum level of support’. In the
Communication on State aid and risk capital, from which
this principle is taken, the Commission normally takes the
view that there must be a call for tender for the estab-
lishment of preferential terms, and therefore the level of
aid given to the investors. The best way of guaranteeing
that the level of support necessary for a project to go

4. CONCLUSION

In the light of the foregoing considerations, the Commission,
acting under the procedure laid down in Article 88(2) of the
its
EC Treaty,
comments and to provide all such information as may help
to assess the aid, within one month of the date of receipt of
this letter.

the United Kingdom to submit

requests

The Commission wishes to remind the United Kingdom that
Article 88(3) of the EC Treaty has suspensory effect, and would
draw your attention to Article 14 of Council Regulation (EC)
No 659/1999, which provides that all unlawful aid may be
recovered from the recipient.’