For the HM Treasury in the United Kingdom, Brattle economists developed a methodology to identify sensitive sectors where the distortion of competition induced by state aids is likely to be particularly serious. We provided a framework in which an economic analysis of state aid can be performed, traced out the effect that various types of aid can have on competition, and presented background information on EU state aid policy. Brattle’s assessment also outlined an approach for identifying sectors suffering from structural problems in terms of market failures, which arise in the exit decisions of firms in declining industries. We also analyzed the factors that determine the magnitude of the distortions of competition induced by state aid in the context of a formal model.