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15 May 2018updated 09 Sep 2021 4:08pm

Calls for EU “commitments” on state aid are a fantastical solution to an imaginary problem

Paul Mason should, in general, be praising them, not seeking to bury them.

By George Peretz

Paul Mason’s article in the New Statesman last week called for Labour to seek advance commitments from the EU about the state aid rules before Labour agrees to remain in the single market. But, like Don Quixote urging Sancho Panza to charge at imaginary giants that are really windmills, his proposal is a fantastical solution to an imaginary problem.

First, the imaginary problem. Mason claims that the state aid rules (and other EU single market rules) would prevent a Labour government from enacting its programme. He then concedes that a detailed analysis by Professor Andrea Biondi and Andy Tarrant of Labour’s 2017 manifesto, published in Renewal, showed that that was not the case. But, rather than grapple with that thorough analysis, he dismisses it as a “bar stool argument”.

That phrase is presumably intended to be ironic, since he immediately produces what really is a humdinger of a “bar stool argument”: namely that, whatever the experts say, some civil servants are said to have told the Labour treasury team in 2017 that EU rules would be a problem. Quite apart from the second-hand hearsay, that argument is based on an assumption that, in my long experience of advising Whitehall on state aid issues, is highly unlikely to be the case. Treasury mandarins have many remarkable skills, but expertise in the state aid rules is not one of them. A cautious official casting a brief eye over a set of broad policy proposals might well (if they are well-trained) mention state aid as an item in the checklist of things to think about, but that is far from identifying any real problem.

The only other argument that Mason puts forward for suggesting that the state aid windmills are in fact giants is unspecified “threats” by the EU to “do a Greece” if Labour seeks to enact its policies. But none of this begins to be coherent without some analysis of what policies he is talking about and why they would be unlawful under single market rules. Not only is there no such analysis but also no attempt to dispute – except by bar stool anecdote – the detailed analysis of Labour’s actual proposals which demonstrates the contrary. (And Mason also ignores the obvious fact that the bulk of the policies in that manifesto, including public ownership and state investment in industry, are pursued lawfully under single market rules by many EU member states.)

The only policy Mason puts forward as one that he says might be problematic is “renationalisation of energy and rail assets currently owned by Germany” – but the problem there, if there is one, is not with single market rules, which permit nationalisation, but with the European Convention on Human Rights (Article 1 of Protocol 1 to which requires proper compensation to be paid). And, even after holding Mason’s piece close to the fire to see if there is anything written in invisible ink, I cannot see anything in it that calls for the UK to leave the ECHR absent radical reform.

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Second, the fantastical solution. Mason calls for the EU to give “advance guarantees that Labour’s programme cannot and will not be challenged in the EU courts”. But the EU could not conceivably write a blank cheque of that kind – not least because it is not just “the EU” but private actors that can challenge unlawful conduct in the EU courts. His inability to progress beyond that demand is yet more evidence of his failure to analyse the problem: had he actually any specific policies in mind that could be problematic, he would not need to resort to the desperate device of a blank cheque, but could seek specific assurances about specific policies.

The solution, though, is fantastical for another reason. Mason acknowledges the existence of World Trade Organisation anti-subsidisation rules, which, although they do not apply to services, are broadly similar to EU state aid rules; but, again, his attempt to dismiss them by pointing to China’s subsidised economy, is no more than another bar stool argument. The UK is in a wholly different position. As by far the EU’s largest and closest trading partner, the EU would be watching it like a hawk: and unlike China, the UK’s open political system and detailed and transparent systems of control of public spending make it hard to obscure the existence of subsidies. Any breach of WTO rules would be likely to be met, for example, with countervailing measures (increased duties) at Calais. So even assuming that there is a problem, the problem will arise whether or not the UK signs up to single market state aid rules.

Finally, the article fails to acknowledge that removing constraints on subsidies is not obviously a left-wing cause. Anyone familiar with the US will know about undignified and expensive competition between US states to attract large corporations with hugely expensive tax breaks and subsidies, with the only winners being large corporations at the expense of taxpayers. The EU state aid rules not only stop that but also, as the Commission has shown, provide a basis for attacking cosy tax arrangements between EU governments and big corporates. The EU state aid rules are not perfect: but Mason should, in general, be praising them, not seeking to bury them.

George Peretz is a QC at Monckton Chambers in London, specialising in EU and competition and state aid law.

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