Anger over state aid rules for small firms

Date: 22/06/2000

By Peter Chapman

COMPETITION Commissioner Mario Monti is set to unveil plans next month to slash the red tape faced by small and medium-sized firms seeking government grants.

The proposals would give them a block exemption from the EU's tough state aid rules for many schemes worth up to €50 million. But European employers' lobby group UNICE has already attacked the plan, arguing that it would give small and medium-sized enterprises (SMEs) far too much leeway and could result in them being granted aid worth more than their annual sales.

European Commission sources say the move, accompanied by other plans to ease the rules for small amounts of aid and training for firms' employees, would free up more of the institution's resources to combat bigger state handouts which have a crippling effect on the Union's single market.

In the draft text, Monti repeats the EU's mantra that SMEs are the driving force of the bloc's economy. But he adds that their development is being hindered by "market imperfections", including the "risk-shy nature of certain financial capital markets and the limited guarantees that they may be able to offer".

Under Monti's plan, companies with annual sales of below €7 million and 50 employees or less would not need to notify the Commission of grants for investments provided that the aid did not exceed a series of thresholds.

Small firms would, for example, be allowed to receive 15% of investment costs or extra wage costs of employing additional workers. This threshold would drop to 7.5% of the cost for medium-sized firms, defined as having up to 250 employees and yearly sales of €40 million or less.

All companies would also be able to claim up to 50% of the cost of consultancy services or participation in trade fairs and exhibitions - a key part of SMEs' business. Two final criteria would limit the amount of aid for job-creation schemes eligible to less than €40,000 per post, and cap overall aid at less than €50 million.

UNICE argues that these restrictions would still give small firms far too much scope to receive grants and damage the Union's single market. It is urging the Commission to reduce the ceiling for exemptions, adding: "In our view, €50 million is excessive and should not be exempt considering the significant impact that such a large amount of aid can have on inter-state competition."

The Commission is also proposing to exempt relatively small amounts of subsidies - known as 'de minimus' aid payments - worth less than €100,000 over three years from the rules.

In addition, Monti plans to address the low level of investment in training in the EU by allowing governments to pay large firms up to 25% of the costs of specific instruction, with small companies eligible for a further 10% of the cost. For general training, these 'aid intensities' would rise to 50% and 70% respectively. These percentages would be increased by a further 5% for firms which are eligible for Union regional aid, and maritime businesses would be allowed to claim 100% of the costs of training.

Competition Commissioner Mario Monti is set to unveil plans to slash the red tape faced by small and medium-sized firms seeking government grants.