No, you don’t have to leave the single market to renationalise

Labour’s 2017 manifesto will create thousands of jobs. It will also destroy thousands of jobs – if we leave the single market.

NS

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The only time I’ve seen my dad truly lost was during the early 1990s recession. The middle classes decided they didn’t need new kitchens. Our drab, green Bakelite phone stopped ringing. His work as a self-employed carpenter stuttered, and then stopped. He was left bewildered, almost bereft. Money became tight. We, in turn, cut back. Others – shopkeepers, barbers – suffered from our spending decisions: the shops at the far end of the street closed down. Eventually, all that got totted up by some statistician. Future historians will only know him as a component of GDP.

For too many of today’s kids this is the reality for their parents. John McDonnell and Jeremy Corbyn know this. This is the moral purpose behind the 2017 manifesto. If implemented it would radically increase public investment and begin to bring good jobs back.

However, government alone cannot refloat depressed towns. We need a buoyant economy. The government’s own leaked economic analysis sets out the costs of the type of Brexit of seeking “tariff-free access to the single market”, which seems to be Labour’s current policy. Answer? It leads to a medium term economic hit of about 5 per cent of GDP.

Behind that statistic there are a lot of kids looking at their dad, worried that his phone isn’t ringing.

The single market is a collection of rules on product safety, employment rights, freedom to move for work, and freedom to invest across the continent.  British firms can export to a market of 500 million people, and EU companies can invest in the UK. Common rules mean no one country can cheat by competing by exploiting workers, avoiding taxes, or creating unsafe products. The rules are overseen by Europe-wide regulatory and legal bodies. In fact, although politicians like to talk about tariff-free access, that isn’t really the issue: it is the removal of “non-tariff barriers” such as differing regulations that really boosts trade and creates jobs.

Our European partners see the single market as an atom they’re unwilling to split. The EU has been clear that they won’t allow individual rules, for example on freedom of movement, to be picked apart. You can either be a member of the single market, like Norway, and gain the benefits. Or you can have your own rules, and take the consequences.

Two different parts of the Labour party would like to split that atom. Some believe we must end freedom of movement. Here is a genuine dilemma. We can modify immigration rules slightly within the single market, as other countries have. But fundamentally if we want to avoid economic pain, Labour needs to accept freedom of movement.

For others, though, the main motivation for leaving the single market is the conviction that the EU’s rules prevent Labour’s policies of renationalisation and an active industrial strategy.

Such worries are misplaced. State aid rules are designed to create a level playing field for companies within the EU and European Economic Area. Why would any one country open up its domestic markets to subsidised foreign competition?

It is state aid rules that have prevented multinationals from working with tax havens to create sweetheart tax avoidance deals. State aid rules have recently been used to force Apple to pay €13bn in avoided tax in Ireland. Corbyn and McDonnell have an honourable record of condemning tax havens: it is state aid rules which are helping to close them.

The rules tend to govern how state aid is given, not whether it is given. Many do far more to support their local economies than the UK. For example, Germany, Spain and Italy all support their steel industries within state aid rules through loan guarantees, taking public stakes or offsetting energy costs. Germany spends 1.22 per cent of GDP on state aid, compared to the 0.35 per cent spent by the UK. There are a wide range of actions a state can take within the rules. The current government simply chooses not to.

Nor do single market rules prevent renationalisation. EU law provides for the principle that individual member states set their own rules on property ownership. European state-owned enterprises include private equity companies, national investment banks and municipal energy companies. Neither is there a one-way street towards privatisation. The UK renationalised Railtrack and set up a Green Investment Bank and NEST, the publicly owned pension provider. EU rules also allow governments to stop private companies cherry-picking profitable customers from public utilities.

Again, the rules tend to dictate how renationalisation would be done, not whether it can be done. For example, in rail, there would need to be a split between a company operating the tracks and another operating the train services, but both could be publicly owned.

An analysis of Labour’s 2017 manifesto found that all its policies would be permissible within EU state aid rules, although two of the proposals, a National Investment Bank and regional energy companies, would need to be structured carefully. We can also go further than the 2017 manifesto if we wish. For instance, we could support the growth of co-operatives through the tax system, take ourselves to the top of the league table on investment in skills, put workers on company boards, buy public stakes in private companies in a sovereign wealth fund, and build houses using public bodies – all within single market rules.

Our 2017 manifesto will create thousands of jobs. Our manifesto will also destroy thousands of jobs – if we leave the single market. The leaked Brexit economic assessment also implies foregone tax revenue, each year, of about £30bn. This is about a quarter of the NHS budget. Given that in 2014 the NHS estimated it needed an extra £30bn a year to cope with ageing population, then we can see we might be risking further austerity.

On Wednesday, the EU Commission Brexit taskforce released its initial thinking on creating a level playing field. Even with a deal in which the UK leaves the single market, the EU proposes that “the EU-UK Agreement will have to include robust provisions on State aid to ensure a level playing field with the Member States.” If enacted this means that the only way to avoid state aid rules would be a WTO rules Brexit. This type of deal eventually implies a hit to tax revenues of about £45 billion a year.

In light of these numbers, it is worth revisiting Nye Bevan’s oft-mangled saying from 1949:

What is national planning but the insistence that human beings shall make ethical choices on a national scale? Planning means that you ask yourself the question: which comes first? What is the most important? The language of priorities is the religion of socialism. We have accepted over the last four years that the first claims upon the national product shall be decided nationally and they have been those of the women, the children and the old people. What is that except using economic planning to serve a moral purpose?

Now we face an ethical choice. There is a moral purpose to the desire to reform state aid rules, renationalise and bend public procurement rules to bring back good jobs. Most, if not all of this can be done within EU single market rules. The question then arises: is it worth leaving the single market, with consequences that we can foresee for people like my dad, in order to end freedom of movement?

Nick Donovan is a campaign director at Global Witness, an anti-corruption NGO, and director of Plane Saver credit union. He sits on Labour's National Policy Forum and on the advisory group for the Labour Campaign for the Single Market. Follow him @nickpdonovan.