This page is part of our successful commissioning toolkit.
Grant is an extremely useful way for a public body to fund a third sector organisation (TSO) for activity that is in line with one or more of the public body’s objectives. For example, a council that is concerned about the poor wellbeing of one of the communities in its area may give a grant to a TSO that is dedicated to raising the wellbeing of that community.
There is some confusion about when grant can and cannot be used. Here we explain the main considerations.
You can use grant if the following three pre-conditions are met:
You need to make sure that you have the legal power to make a grant for the purpose you envisage. This type of power is one of the types of powers discussed earlier under Clarifying your ability to intervene: Legal power. The power to make grants may be in specific terms, such as ‘a council may make grants for the improvement of its local environment’. Or it may be more general, such as ‘the agency may make grants for the improvement of well being’. If you’re unsure, check with your legal manager that you have the power you seek.
European Union (EU) rules do not permit any member state to provide government funding (‘state aid’) that distorts, or threatens to distort, market competition within the EU, except in certain permitted circumstances. Any grant you propose to make should not contravene EU rules on state aid. To be classed as a state aid, a grant would need to satisfy all of the following four criteria:
- It is granted by the state or through state resources;
- It favours certain undertakings or the production of certain goods;
- It distorts, or threatens to distort, competition;
- It has the potential to affect trade within the EU.
There are exceptions. For example, aid to certain industries, aid for small and medium sized enterprises (SMEs), and aid for ‘services of general economic interest’ (SGEI) that cover some public services. The Department for Business, Innovation & Skills has produced guidance on how state aid rules impact on funding for the delivery of public services including SGEI. [Note]. There are financial limits below which funding does not count as state aid.
It is uncommon for grants to TSOs to be affected by state aid rules. But you do need to check. However, take a sensible approach to this, based on managed risk not risk avoidance. If in doubt, consult the state aid adviser or legal manager in your organisation.
Right ‘kind’ of money
In ‘Assessing needs’, we refer to the need to be clear about your ability to intervene. In particular, whether the block of money you intend to use is the ‘right’ kind of money for the activity you envisage. For many organisations in the public sector, one of those blocks is the grant block. If you wish to make a grant, your money must be in the grant block. If it is not, your organisation can normally move money from other blocks in your budget into the grant block. You must do this with your finance manager.
Note: Department for Business, Innovation & Skills: State Aid – Advice