EU gives go-ahead to State capital schemes

The European Commission has cleared plans by the Government to extend the Business Expansion Scheme (BES) and the Seed Capital Scheme - although it has imposed a number of conditions.

The Tánaiste and Minister for Finance, Brian Cowen, announced the extension of the two schemes in last December's budget for a further seven years to help small firms raise investment. He also increased the amount of money that firms can raise through the scheme to €2 million, up from the previous limit of €1 million. The higher limit is subject to a maximum of €1.5 million being raised in any one 12-month period.

The Irish Congress of Trade Unions (Ictu) had formally objected to the commission about the policy changes. It alleged that the two schemes constituted illegal State aid as investors get tax breaks for putting their cash into scheme funds.

Ictu's decision to lodge its complaint with the EU last December was greeted at the time with "utter disbelief" by Minister for Enterprise, Trade and Employment Micheál Martin, who was concerned that any delay to the scheme could hurt small firms. He welcomed the EU ruling.

The commission published the decision on its website and said it would release a public version of the full decision once "it has been cleansed of any confidential information".

However, Mr Cowen last night said conditions attached to the approval of the schemes' extension would require amendments to the legislation.

The changes mean that companies in counties Dublin, Meath, Kildare and Wicklow will qualify only for seed capital or as start-ups. Existing businesses must be in EU "assisted areas", which effectively means the other 22 counties in the Republic.

Companies which raise funds under either the BES or Seed Capital Scheme will see the amount offset against most other State aid eligibility. "These EU conditions should not significantly hinder the overall contribution of the BES scheme to economic development and employment," Mr Cowen said.

The chief executive of the Irish Taxation Institute, Mark Redmond, last night welcomed the decision.

However, Pat Brazel, chairman of the Irish Software Association, expressed concerns about the conditions. "It would be extremely unfortunate if the effect was to deny State funding to start-ups who would previously have got it," he said.