Commission relaxes rules on state aid for troubled firms

A trailblazing campaign by Northumberland Foods, backed by Liberal Democrat MEP Fiona Hall, has unlocked access to additional state aid for beleaguered food and drink processors across the UK.

The manufacturer became entitled to financial support after European rules were relaxed in order to help companies struggling in the current economic recession. The change in rules, which were originally designed to make sure that companies in different countries operate on a level playing field, now mean that more firms are eligible for central or local government aid.

"The European Commission has confirmed that subsidised loans and loan guarantees are allowed, under newly relaxed rules on state aid designed to help companies struggling," said Hall.

Her comments came as she championed Northumberland Foods' eligibility for state aid last month. The company fell into difficulties after its electricity supplier demanded a bond to underwrite its electricity bill - which was effectively an advance payment.

Northumberland County Council was considering loaning the money to Northumberland Foods, but it was advised by accountancy firm Deloitte that such a loan might contravene European state aid rules.

Consequently Hall took up the case directly with officials in the European Commission. The commission confirmed that subsidised loans and loan guarantees were allowed "under newly relaxed rules"

"Because of the recession many rules have been relaxed in order to make sure that businesses get the support that they need," said Hall. "The Commission made it clear to me that help to Northumberland Foods would be covered by the temporary framework on state aid agreed between the UK government and the Commission."

However, she added: "I have been a bit concerned all along that the state aid argument was being used as an excuse. Now that the position is clear, I hope that financial support will be forthcoming."

Northumberland County Council said that it was currently considering offering help to the manufacturer.

Northumberland Foods was previously known as Cheviot Foods, adopting the name change after it escaped closure in a last minute management buyout earlier this year.