Although the UK has left the EU, in name, at least, it remains bound by the EU’s State Aid rules durig the Transition Period. This means that the Government’s powers to stem the damage to the economy caused by the Covid-19 pandemic are limited by EU law and subject to the prior approval of the European Commission.
Usually, such a decision takes weeks or months, but the European Commission looks to be moving more quickly in the current climate. The first State Aid scheme in response to the COVID-19 crisis, notified by Denmark, was cleared by the Commission within 24 hours. The Danish scheme is to compensate organisers of postponed or cancelled events with either (1) more than 1,000 participants, or (2) targeted at designated risk groups, such as the elderly or vulnerable people, irrespective of the number of participants.
The legal basis for the European Commission’s decision was Art. 107(2)(b) TFEU. This rule provides that “aid to make good the damage caused by natural disasters or exceptional occurrences” are automatically “compatible with the internal market.” EU law provides no precise definition of the notion of “exceptional occurrence” but the EU courts have consistently held that it must be interpreted restrictively. In the Danish decision, the European Commission states that COVID-19 crisis qualifies as an exceptional occurrence as it was not foreseeable and is not an ordinary event in terms of its effects on the economy and, therefore, it lays outside of the normal functioning of the common market.
As a result, interventions by Member States to compensate for damage caused by the response to the COVID-19 outbreak are justified. However, any aid provided by the UK must still receive EU approval and be fully compatible with its State Aid rules:
- it must be proportionate to the damage caused by the exceptional occurrence,
- it should only make good the damage caused by the exceptional occurrence, and
- it must not over-compensate beneficiaries.