State aid and regional policy Paul Hadley Department for Trade and Industry United Kingdom

Introduction  Present arrangements  Context for reform  State aid and regional policy  Developing UK thinking on state aid reform

Principal UK approvals Regional Aid map N 265/2000 Regional Selective Assistance N 731/2000

Context for reform  A Modern Regional Policy for the UK, March 2003: –UK approach to regional policy –Consultation on future of Structural Funds  Joint DTI, HMT, ODPM target : to improve long term economic performance of every region

UK approach to regional policy  UK productivity objectives – similar to those set out at Lisbon:  Each region needs to perform better if we are to achieve these objectives  Strengthen market forces – building on the indigenous strength of each region  Ensure that differentials in growth rates are reduced by focusing resources where they are needed most

State aid reform  UK approach to regional state aid reform fits Lisbon agenda “Less and better state aid”: –Ensure efficient operation of the state aid regime –Ensure horizontal guidelines in place to address market failures which hold back growth –Simplification and modernisation of the rules – allowing Commission to focus on the most distortive aids –Consider limiting investment aid to cases where the most difficult problems are being tackled

An efficient state aid system Need for simpler and quicker identification of cases that do not distort competition or trade significantly Commission to focus resources on cases with high impact Consider introducing a significant impact test to filter out low competitive impact cases which pursue Community objectives

Tackling market failures with horizontal guidelines Appropriate tools need to be available. UK priorities include: –Revising R&D guidelines –Better tools to help start-ups and expanding SMEs –Addressing cases involving intermediaries –Regeneration

Role of investment aid Likely to be a role for investment aid beyond 2006 Needs to be appropriately targeted UK currently restricts such aid on the basis of: –cost per job –project type –limit to the minimum necessary –consider job displacement impact

UK proposals for revised guidelines Limit aid to cases where it addresses the problems which drive regional under- performance Ensure aid is proportionate Enable more focused targeting. If a map based approach is maintained then the areas may need to be of a smaller size than currently possible

Where do we go from here? Three main areas for discussion: Horizontal guidelines to address market failure Simplification and modernisation Spatial issues