Where to start with the Conservatives’ “Buy British” promises to end EU state aid rules?
The obvious point is that dumping rules that prevent governments subsidising domestic firms will make it much harder to strike a trade deal with the EU after Brexit. Limiting state aid is pretty much fundamental to the EU’s very existence and operations; arguably the story of the EU since the late 1980s is a story of trying to drag European politicians away from protecting favoured sectors and firms and opening their economies up to cross-border competition.
Of course, that story isn’t much told in the UK where, thanks not least to the sort of journalism once practiced by Boris Johnson, most people believe the EU is an exercise in anti-competitive protectionism. Perhaps that was once true, but then came the Single Market and leaders including a certain Margaret Thatcher, who turned the EU into something very different.
The politics of this are clear. Johnson thinks the people on whom his re-election depends want Brexit to mean more “buy British” policies and a state that can rescue companies on which some areas rely for employment.
And perhaps in a few places, a greater freedom to subsidise failing firms might go down well, for a while. But in the long run, and across the economy as a whole, it’s simply impossible to see how this could benefit consumers and standards of living.
The idea that underpins Thatcher’s Single Market is that markets (meaning investors and customers) know better than politicians how to allocate capital to maximise returns. State aid is, in the end, about delivering better for taxpayers (who don’t have to bail out failing firms) but more importantly for consumers, who benefit from firms competing against one another for their custom with cheaper, better products. Competition really does work. The UK economy needs more of it, not less. And more state aid means less competition.
I’m not a starry-eyed free marketeer. I spend a lot of time arguing for a more realistic approach to markets, which rarely work as well as the textbooks predict, especially for people on low incomes. But the answer to such problems is generally better and stronger rules, properly enforced, not by arbitrary injections of public money. The critics, including the Corbynites, have a point in their diagnosis of the UK economy. The game is not always being played as it should be. But that means the state should be a better referee, not a player.
The fact that a Conservative Prime Minister is proudly promising to junk state aid rules that underpin the Single Market Thatcher helped build is one of the most eloquent statements yet about how far Brexit has changed the Conservative party.
It’s also another brutal example of how the reality of post-Brexit policy compares to the rhetoric of the referendum. Remember all those swashbuckling Brexiteers who promised that outside the tyrannical grip of the EU and its red tape, buccaneering Britain would be able to strike out into the global economy as a champion of free markets and free trade? I wonder where they are today.
P.S. If – and it’s still an “if” for several reasons – Johnson does make good on this promise, expect real trouble in Scotland. EU state aid rules have so far helped stop the SNP administration in Edinburgh bailing out and propping up Scottish firms. Scrap those rules and the only thing stopping such tartan subsidies will be ministers in London. And what could be more helpful to the Nationalist cause than wicked Tories in London trying to serve Scottish voters by supporting Scottish jobs?