Charities question EU rules on government loans

Charities are pushing the European Commission for clarification of new rules that threaten a dramatic increase in the cost of borrowing money from government funds.

The commission has published updated rules on state aid, which are designed to prevent government subsidies from distorting competitive markets.

The rules, due to come into force in July, say that public money loaned to organisations must be subject to an additional interest premium linked to the financial strength of the borrower.

Under the rules, small charities, which are viewed as a greater risk, could face interest rate hikes of up to 10 per cent on loans from organisations such as Futurebuilders and the social investment bank proposed by the Commission on Unclaimed Assets.

Oli Henman, UK and international manager at the NCVO, said: "Our worry is that funders will over-compensate and back away from funding in the fear that they might contravene the legislation without knowing for sure."

Toby Eccles, secretary to the Commission on Unclaimed Assets, said: "It highlights the need to clarify how state aid applies to social enterprises because many of the small ones would otherwise be hit by these changes."

A spokesman for the Office of the Third Sector said it was in discussion with European partners about a social investment bank and was confident a solution could be found.

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