Large companies have complained to ministers that hundreds of millions of pounds of support is being blocked after a decision to stick with certain EU state-aid rules even though the UK has left the trading bloc.
Some businesses say they have been locked out of the government’s £4.6bn emergency Covid-19 grant scheme announced this month, leaving jobs hanging in the balance as they face an indefinite period of forced closure in the latest national lockdown.
Last year the UK government agreed that individual companies would not receive more than €4m each in grants to deal with the Covid-19 crisis, after signing up to the European Commission’s “state-aid temporary framework”.
The emergency measures initially allowed EU member states to give grants of up to €800,000 to struggling companies before the cap was lifted to €4m.
But some large British companies, including retailers, have reached the limit from grants used last year — with some not even able to qualify for the higher threshold owing to other criteria — despite having to close their stores again this month.
Executives are demanding to know why ministers appear to be obeying an EU edict when Britain has left the bloc.
“It’s bizarre that EU state-aid rules are standing in the way of hundreds of millions of pounds of financial support that will protect jobs,” said Helen Dickinson, chief executive of the British Retail Consortium trade association.
“The government needs to look again at this decision, which could provide a lifeline to many businesses that have been forced to close because of Covid restrictions.”
The problem has been raised with new business secretary Kwasi Kwarteng and small business minister Paul Scully in recent days, said people close to the talks.
Revised guidance from the UK government in January noted that EU state-aid rules no longer applied to UK subsidies after Brexit. But it added: “The State Aid Temporary Framework provisions set out in previous guidance should still be applied to these schemes until further guidance on subsidy control related to these schemes is issued.”
For now the government is abiding by the temporary framework but ministers are understood to be aware of business concerns and are considering a change to the guidelines. “This is part of the unravelling that needs to be done,” said one insider.
A government spokesperson said: “Each business is able to access the equivalent of up to €4m from our various grant schemes, meaning there are no barriers to the vast majority of businesses seeking to access funding.”
All businesses in England forced to close should be able to claim a one-off grant of up to £9,000 for each of their non-domestic properties, although the amount depends on the rateable value of these properties.
Officials have told companies that the January money is an extension of the schemes from last year, so fall under the same rules. But bosses argue that the government should use the issue to display Britain’s willingness to diverge from unnecessary EU restrictions.
State aid was a major sticking point in the Brexit negotiations last year but the UK was given the freedom to set its own rules in December’s trade agreement.
Under that deal, EU companies will be able to challenge state aid awarded to British rivals in the UK’s courts if they believe it violates common principles — something retailers say is unlikely in the case of a domestic high street chain.
The BRC said that guidance given around the grants was not clear on the extent to which funds were limited by the new subsidy control rules set out in the EU-UK Trade and Cooperation Agreement (TCA).
It argues that even if the new grants fall within the rules of the historic relationship with the EU, there is an exception under the TCA that allows aid limits to be overruled on a temporary basis in a national emergency.
In a letter to the chancellor, seen by the FT, Ms Dickinson asked “as a matter of urgency whether there is a limit to the sums that a business may receive through the January top-up grant scheme, and if so what the basis of any such limit is”.