European Commission - Press release
State Aid: Commission clears aid for the creation of
Brussels, 20 December 2011 - The European Commission has approved under EU state aid rules support measures of up to GBP 400 million to be provided by the United Kingdom for the creation of social investment company Big Society Capital (BSC). The object of BSC is to invest in social companies, mainly Social Investment Finance Intermediaries (SIFIs) that have difficulties in procuring affordable funding from the markets. The Commission found the measure to be in line with EU state aid rules, in particular because BSC's business model contains a number of safeguards to ensure that its investments do not distort competition at the level of the SIFIs. Moreover, SIFIs are required to re-invest the capital by lending to frontline social sector organisations under strict conditions, to avoid crowding out private investors and distorting competition. The Commission approved the measure for five years.
Commission Vice President Joaquín Almunia, in charge of competition policy, said: "The commitments and safeguards put in place by the UK ensure that state aid linked to this innovative project in the social sector remains well-targeted and does not result in undue distortions of competition".
BSC's objective is to contribute to improving the access of social sector organisations to affordable funding. BSC will in particular invest in social investment and finance intermediaries (SIFIs) in order to foster the development of financial intermediation targeted at the social sector. In doing so, BSC addresses market failures affecting the funding of the social sector.
The capitalisation of BSC through monies from English dormant accounts involves state aid at the level of BSC itself, at the level of the investees, mainly SIFIs, and finally at the level of the social end recipients of the investment. However, most of the aid will be passed through by BSC and to a certain extent by SIFIs to the end recipients.
The UK undertook to ensure that all support for end recipients will either be too small to constitute state aid in the meaning of the EU rules (so called "de minimis", see IP/06/1765) or remain well within the limits of the Commission Regulation exempting certain categories of support from state aid scrutiny because their benefits for the economy are deemed to outweigh any potential distortions of competition (see IP/08/1110). At the level of BSC and the SIFIs, several safeguards have been put in place to ensure that the state support does not unduly distort competition. In particular, they will scrutinise each application to determine whether market funding could have been obtained. Criteria such as the business plan, expected risk adjusted returns and social impact will be taken into account. The Commission therefore concluded that the measure was in line with Article 107(3)(c) of the Treaty on the Functioning of the European Union, that allows to grant aid to support the development of certain economic activities.
In view of the innovative nature of the project and the uncertainties affecting the development of the underlying market, the Commission has limited its approval to a period of five years from the date of the decision. Furthermore, any increase of the initial capitalisation of BSC through dormant account money beyond GBP 400 million and any increase of BSC's total balance sheet beyond GBP 600 million need to be notified to the Commission.
The non-confidential version of the present decision will be made available under case number SA.33683 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.