Hewitt fires off protest over Brussels revamp of regional aid

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PATRICIA HEWITT, the Secretary of State for Trade and Industry, has made a formal protest to the European Commission to try to head off plans to end state aid going to companies setting up in the UK's poorer regions.

The letter, seen by The Independent, is part of a co-ordinated initiative with France, Germany and Austria, to see off the clampdown favoured by the EU Competition Commissioner Neelie Kroes.

The fear is that Ms Kroes's plans would end Britain's right to encourage companies such as Nissan to invest in areas like Sunderland. British officials are particularly sensitive over the issue because the UK's self- exclusion from the euro may put it at a disadvantage to mainland European nations in terms of attracting inward investment.

Ms Hewitt's letter marks the beginning of a fierce battle over the future of state aid to poorer regions. As things stand EU member states are allowed to use national funds to subsidise firms in deprived parts of the country providing they follow strict rules administered by the European Commission.

In an interview last week, Ms Kroes suggested ending state regional aid in the richest countries of the EU, while allowing it to be used as a tool in the less-developed eastern countries.

Mr Kroes is expected to bring forward her plan within the next four months. But the ideas in her interview have not been discussed with colleagues and one Commission insider described them as a "bolt from the blue".

Peter Mandelson, the EU Trade Commissioner, is said to believe the ideas are extreme, a view apparently shared by Gunther Verheugen, Germany's Commissioner for Industry. Both are likely to argue internally for the policy to be watered down.

Ms Hewitt's letter says that while it "may be appropriate" to reserve "the highest rates of assistance to the underdeveloped areas, aid differentials at too high levels between territories of the Union risk serious consequences in terms of employment in many areas by stimulating companies to relocate".

It adds that the "total suppression, with a few exceptions, of regional aid for large companies" outside areas currently deemed the most deprived "is of much concern".