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3 November 2016

George Osborne: Brexit government likely to keep controversial state aid rules

The former Chancellor also questioned the focus on immigrants in the wake of Brexit. 

By Julia Rampen

One of the criticisms levelled at Britain’s membership of the European Union is the fact that it makes it harder for the government to protect industries in times of economic strife.

For Labour, one of the key demands of the Brexit negotiations is that in future the UK will have stronger rights to shield its own businesses. 

John McDonnell, the shadow Chancellor, recently declared: “We cannot have governments hiding behind the excuse of the EU’s state aid rules to block interventions.”

But according to former Chancellor, George Osborne, that’s exactly what the government will be fighting for.

Speaking at the launch of the LSE’s Growth Commission, he said: “Chancellors of the Exchequer can hide behind the EU state aid regime.

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“What happens is a firm is in trouble, in often a politically sensitive part of the country, and there is a lot of political pressure to do something about the firm, even if you don’t think it has got a particularly great future.”

In this case, he said, “the state aid regime is pretty effective” at stopping such interventions.

He suggested the government could already be drawing up rules to replace the EU’s rules: “My successors in the exchequer would love, I expect, to have a state aid regime for the UK that will protect the exchequer, and protect taxpayers, from these company-driven decisions.”

The state aid rules stem from the liberal economic view that governments should not prop up failing industries when the money could be better spent elsewhere. As far as the EU is concerned, state aid rules encourage countries to trade with each other and not simply protect their own markets.

Osborne cited the example of AstraZeneca, a large pharmaceutical firm, pulling out of his constituency, but being replaced by many biotech start-ups.

“You are always clear about what you are losing,” he said. “It is not always clear what you are gaining.”

He also attacked the idea immigrants were taking British workers’ jobs, saying: “We are actually close to full employment in this country.”

When Osborne was Chancellor, the government came under fire for initially refusing to intervene to protect British steel when commodity prices worldwide slumped. The UK also blocked efforts by the EU to introduce protections

However, the new Prime Minister, Theresa May, has set a more interventionist tone. She replaced Osborne with her ally Philip Hammond, who has hinted at a more muscular fiscal policy. She also outlined plans to weigh in on foreign takeovers of British companies, and also, more controversially, to scrutinise how many foreign employees companies took on.