Brussels stirs state aid furore by querying BT's rates bill

The European commission yesterday confirmed it is looking into a complaint by one of BT's rivals which alleges that the telecoms firm received illegal state aid, but stressed that it has not yet launched a full-scale investigation.

A report yesterday that telecoms minnow Vtesse Networks had complained to the commission about what it sees as BT's low bill for business rates - the equivalent of corporate council tax - caused initial City speculation that Brussels would deliver a multi-billion pound bill.

But it later emerged that the commission had merely asked the UK government whether the complaint had any validity.

"This is far from a formal probe, this is a preliminary inquiry to see whether this complaint has any merit at all," said an EC spokesman. The commission has asked the government to provide direction as to whether there is any basis for the complaint by the end of the month. Only then will Brussels decide whether to launch a formal investigation, which could take months.

Vtesse alleges that BT's rivals pay higher rates on their infrastructure than the former state monopoly and this amounts to a government subsidy.

BT immediately accused the company of trying to confuse people in pursuit of "a cheap publicity trick".

"Vtesse has tried to confuse the issue by comparing business rates to our revenues. Rates are based and always have been based on the value of assets, or it would be an income tax," said a BT spokesman. BT pays about £300m in business rates each year, making it one of the UK's biggest ratepayers.

Vtesse claims that the rateable value of BT's assets, on which its tax bill is calculated, is about £500m. If BT's assets were valued at what Vtesse believes the regulator Ofcom understands them to be worth, it says the rateable value would be closer to £3.6bn.

In a note on the dispute, HSBC calculated that, while it is unlikely that BT will have to pay any backdated rates, if the commission does decide BT's rateable value is too low the firm could be looking at an increase in its annual tax bill of more than £1bn.

BT's management is livid at what it sees as Vtesse using misleading figures.

The BT spokesman added that talk of state aid and reports that the company could be facing billions of pounds worth of fines was "blowing it out of all proportion".

"We are glad to see that the EU has confirmed there is no formal investigation," he said, adding that if the commission did take any further action the company would cooperate.

News of the complaint sent BT shares lower in early trading but as it emerged that there was no formal inquiry the stock recovered to finish largely unchanged on the day.