Andrew Taylor: Bailout recipients beware state aid rules

The past few weeks have seen several reports of payments being made to individual NHS trusts that appear to be unrelated to the provision of extra or additional services.

‘The chances increase of a private sector provider, social enterprise, or third party supplier − or even an aggrieved public sector provider − making a complaint to Brussels’

These includes £500m over two years to a selection of trusts to address pressures on accident and emergency units, payments to at least three trusts (Barking, Havering and Redbridge; United Lincolnshire; and Portsmouth Hospitals) in response to financial problems, and incentive payments to trusts to adopt the Lorenzo IT system.

There is a risk that these payments, and other non-cash benefits (eg: tax relief, soft loans) provided to NHS organisations, make the trusts vulnerable to a complaint to the EU, under its state aid rules. This could ultimately lead to the money having to be repaid − even if this means the trust going into administration

The rules

EU state aid rules prohibit payments, including non-cash benefits, being made to individual firms, or categories of firms, within a sector.

To distinguish state aid payments − which are banned − from those that are necessary for the provision of public services such as healthcare − which are allowed − EU law specifies four conditions that must be met:

• There must be an “entrustment act”, which clearly defines the public service obligation that is being paid for.
• The parameters for calculating payments must be established in advance in an objective and transparent manner.
• Compensation for service provision cannot exceed the relevant costs and a reasonable profit.
• The provider is either chosen by public procurement or the level of compensation is based on the costs of an average “well run” provider.

State aid payments to healthcare (and other social services) also benefit from, among other things, not requiring prior approval from Brussels, and less strict tests about whether they represent reasonable compensation.

Tempting offer

However, even with this additional leeway from the EU, it is not clear the government’s delivery of cash to trusts is meeting the requirements. There is little sign of the formal “entrustment acts” the government is obliged to publish, or of the separate accounts that NHS trusts must have for their public service and private activities.

As the financial pressure on the NHS increases, payments of the type seen in recent weeks could become more common. The chances therefore increase of a private sector provider, social enterprise, or third party supplier − or even an aggrieved public sector provider − making a complaint to Brussels.

For trusts that have not taken the precaution of ensuring that the one-off cash injection, so temptingly offered by the government, complies with state aid rules, the consequences could be nasty.

Andrew Taylor was founding director of the Cooperation and Competition Panel and is now a partner at Aldwych Partners