Could Corbyn carry out his manifesto under EU state aid rules?

Earlier this month, senior EU officials briefed that the bloc’s Brexit negotiators are pursuing a hard line on the single market in an attempt to stop a Corbyn government from implementing renationalisation policies.

A Brussels source told The Times that, “The real fear is state subsidies under a Jeremy Corbyn government. British policy has remained unchanged for generations but now there is a real chance of a left-wing government reversing it. We have to protect ourselves and the single market.”

The news was quickly followed by a vote in the House of Lords that effectively gives the Commons a final say on the UK’s membership of the single market. Given the current makeup of MPs, it seems likely that they would vote to keep Britain within the EU’s regulatory sphere.

All this might worry those on the left of the Labour party. Corbyn himself has said that the EU restricts economically interventionist governments, arguing that the single market, “has within it restrictions in state aid and state spending. That has pressures on it through the European Union to privatise rail for example and other services.” Only two months ago, the French government was found to have contravened state aid rules in their attempt to maintain a state monopoly on rail.

The source of Corbyn’s concern is Article 107 of the Treaty of Rome. The agreement binds member states into a laissez-faire economic framework by putting restrictions on financial aid. The Article states:

“Any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

The article does include some exemptions. For example, state aid in response to natural disasters is permitted, as is intervention to correct “areas where the standard of living is abnormally low.” Countries can also apply to the Commission for exemption in certain cases, such as the recent (temporary) nationalisation of the port of St-Nazaire by France.

But overall the position is clear. Governments cannot intervene in the running of free markets. Of course, there are exceptions laid out in the treaty, but Article 107 effectively acts as a rachet – once privatised, there is little room for a return to state ownership.

Take the most obvious example, the renationalisation of Royal Mail. None of the get out clauses would appear to allow state intervention in what is now a crowded postal and deliveries market. While the EU might allow the continuation of certain historic state-owned enterprises, the direction of travel is towards greater privatisation and market competition.

Or take Labour’s commitment to a national investment bank. The idea is that a future Labour government would help banks invest in SMEs and higher risk enterprises by discounting lending costs. Labour hopes to shift the lending market away from asset rich enterprises and instead encourage banks to lend to riskier but more dynamic businesses. Such a plan would clearly distort competition by supporting businesses that may, in the future, generate sustainable returns but would otherwise have collapsed without state support.

Labour could try to use the quality of life exemption. But the problem here is that not a single region in the UK is as poor as Greece or central Italy on the crucial metric of purchasing power. Areas like Wales and the North East don’t even come close to being classed ‘abnormally low’ by EU standards.

Even if Labour wanted to take a more pro-business line and create tax incentives for certain businesses, this too could contravene state aid rules. Last year, the EU referred Ireland to the European Court of Justice for providing Apple with market-distorting tax breaks. Ireland ended up having to collect around €13bn worth of unpaid tax from the global tech firm.

While state aid rules give members some wriggle room, the capacity for nationalisation is severely blunted. And given the UK’s current relationship with Brussels, it seems even less likely that the EU might be in any mood to negotiate.

 

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