EU deal on regional aid could safeguard inward investment
Northern Ireland's job creation agencies have contributed to several major investment announcements in recent weeks affecting businesses such as Wrightbus, Schrader Electronics, Ernst and Young, and Stream International.
The timing of these announcements, as the economy moves out of recession, is welcome. However, it may also have been accelerated by forthcoming changes in the rules affecting the availability of financial incentives to locally based businesses.
Within the EU the map has been sub-divided so that the scale of permitted assistance is highest in the least prosperous regions. The competition rules try to eliminate inter-country or inter-regional 'beggar my neighbour' competition with excessively high levels of aid.
Appropriately, Northern Ireland no longer merits being placed in the highest category but, in an intermediate group, which is allowed to offer regional assistance on a more modest scale than recently. The existing rules operated from 2007 to the end of 2013. New rules were not finalised to be in force for January 1, 2014, so that there are interim arrangements until July 1, 2014 when new rules are expected to be ready.
The negotiations on the rules for Regional Aid are complex and involve Stormont departments, particularly the Department of Enterprise, Trade and Investment (along with Invest NI), the Business Department in Whitehall, and the European Commission. Because the negotiations have been prolonged, there has been little publicity or firm guidance in Northern Ireland on the expected outcomes.
In the current negotiations, Northern Ireland has been given one commitment that avoids an early but unwelcome suggestion. The European Commission has carefully re-examined the map of the EU to identify areas that might be excluded from permission to offer regional aid because they were not in the most deprived areas. The commission initially suggested to the UK Government that the Belfast conurbation should be excluded.
After this proposal had been seriously criticised, particularly by DETI, the UK Prime Minister (on the fringe of the G8 conference in Enniskillen) announced that all of Northern Ireland would continue to be treated as one area able to apply regional aid to the modified levels allowed for an assisted area.
This concession is only valuable so long as a wider general scheme of regional assistance is approved at an appropriate level.
Three further developments have been agreed for implementation from July 1, 2014. First, a 'de minimus' exemption has been agreed for aid schemes where a business might be awarded assistance of up to €200,000.
Second, the general regional aid scheme will be amended from July 1, 2014, by reducing assistance for firms outside the Belfast area by five percentage points. The maximum level of assistance allowed in each of the three categories: large firms, medium sized and small enterprises to 10%, 20% and 30% respectively. In the Belfast area the limits will remain as at present: 10%, 20% and 30%.
Third, the commission is anxious to avoid an excessive reliance by large businesses on seeking recurring additional regional aid once the business has been established and should be able to finance its own further development. Initially, there was a proposal that regional aid should simply not be available for large firms.
Pressure from areas such as Northern Ireland has resulted in a compromise. For large firms, employing over 250 people, regional aid will only be allowed for an INITIAL investment in the delivery of a NEW economic activity. From a Northern Ireland perspective, perhaps reluctantly, this amended proposal allows continuing incentives to attract external investment.
Other parts of the regulations on State Aid extend the EU remit to measures which assess and incentivise Research, Development and Innovation, assistance with training costs and provision of risk capital. If Brussels gets agreement on the amended regional aid rules and the UK remains a full member of the EU, this is an important safeguard in continuing to attract external investment in the years to 2020.