Leaving the EU: State Aid, Public Ownership and Workers’ Rights

Chi Onwurah Excerpts

Tuesday 11th December 2018 Westminster Hall

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a great pleasure to serve under your chairmanship, Mr Hollobone, and I congratulate my hon. Friend the Member for Crewe and Nantwich (Laura Smith) on securing this important debate, which is now the only piece of Brexit business tabled today—not what I was expecting.

State aid, public ownership, and workers’ rights are the critical building blocks of our nation’s economic model, and getting them right will be crucial to our future prosperity and the nature of any post-Brexit settlement. As my hon. Friend expressed so clearly, the Brexit vote has exposed the flawed foundations of our economic model. After decades of crying that “there is no alternative” to neo-liberal privatisation, laissez-faire economics, and deregulated labour markets, it was a Conservative Chancellor who, after the Brexit vote, threatened to “change our economic model”. Of course, he was actually proposing an acceleration of neoliberal reform without the constraints of European law—a “race to the bottom” in workers’ rights and protections, as the Leader of the Opposition put it in Lisbon last week.

The European Union delivers and guarantees important rights to British workers that we cannot allow to be taken away, but it has not always fulfilled the promise of a social Europe. I was also in Lisbon last week, representing the British Labour party at the congress of the party of European Socialists. I told them that no matter what happens with Brexit, we must all fight for socialist values within Europe: strengthening the rights of workers and trade unions, and ending austerity and wage suppression.

Yesterday in France President Macron finally recognised that French working people need higher incomes, not lower ones, if France is to prosper. It should not take riots in the street for our leaders to get that point. Here in Britain the real issue underlying Brexit is that working people want and deserve real rights, a real voice, and better lives. The Brexit deal must therefore defend what we have won in a European context by upholding workers’ rights and social protections, and if Brexit does not mean that, it is a total fraud against working people. The deal must also allow us to make further gains in the context of our continuing economic relationship with Europe, whether by strengthening European works councils, or restoring public ownership of public goods. That is what the Leader of the Opposition meant when he said in Lisbon:

“As socialists and trade unionists, we will work together to help build a real social Europe, a people’s European socialist Europe”.

What should that mean in practice for state aid, public ownership, and workers’ rights? As many hon. Friends have eloquently said, Labour Members reject the Government’s position that the best the state can do for the economy is get out of the way of the private sector. In the words of the renowned economist Mariana Mazzucato, we believe in an entrepreneurial state that stands shoulder to shoulder with the private sector. We are not talking about uneconomic subsidies for dying industries or failing firms; we want targeted interventions that support a prosperous, competitive, growing, and technologically driven economy that works for all. Yes, that should include public ownership where there is a natural monopoly or important public goods are at stake. Mazzucato also observed that, much like taxation and regulation, state aid rules are often used as an excuse for no investment and general inertia, and as my hon. Friend the Member for Stroud (Dr Drew) pointed out, that is particularly true for the UK Government. One example of that is in my region, the north-east, where the steel sector was allowed to decline and suffer because of Conservative inaction.

The UK has never gone as far as European Union law allows to enable the state to support the UK economy. As a percentage of GDP, we spend far less on state aid than our European neighbours—roughly 0.3%, compared with 0.6% in France and 1.2% in Germany. Public ownership is common on the continent, guaranteed by article 345 of the Lisbon treaty, which allows countries to make their own decisions on ownership. SNCF is France’s national state-owned railway company, and the German energy sector is experiencing a return to public and communal ownership. In this country we have Scottish Water, which was mentioned by the hon. Member for Glasgow East (David Linden). Some French and German public companies even own parts of our privatised utilities, and in that far-left enclave, the Netherlands, private ownership of water companies is illegal.

Although it is true that European Union member states are bound by a requirement to provide aid only on the basis of a level playing field, public service compensation does not constitute state aid when it applies to services of general economic interest. Those are economic activities that deliver outcomes in the overall public good that would not be supplied by the market—or would be supplied under different conditions regarding objective quality, safety, affordability, equal treatment or universal access—without public intervention. That could refer to a number of services, so will the Minister commit to report back to Parliament on which of our services of general economic interest we need to protect?

Before entering Parliament I had a job as Head of Telecoms Technology for Ofcom, the communications regulator, and I spent many months comparing our use of provisions for services of general economic interest with the way they were used by our European neighbours. I can confirm to the House, and especially my hon. Friend the Member for Crewe and Nantwich, that we do not use such provisions. The Government do not even seem committed to protecting our public services in new trade deals. Will the Minister commit to ensuring that future trade deals do not threaten the public ownership of crucial national assets such as our NHS?

As my hon. Friend the Member for Barnsley East (Stephanie Peacock) remarked, regardless of whether people voted leave or remain in the European Union referendum, no one voted for worse rights at work. Well, at least not at their work. Members of the European Research Group may well have voted for worse rights for others, while wishing to retain and indeed expand their privileges as parliamentarians. They want working people back in the middle ages, but not the sanctions that MPs received at that time. A poll commissioned by the Institute for Public Policy Research in February this year found that more than 70% of people want European Union rights at work to be strengthened or maintained after Brexit—more than double the number who thought they should be watered down.

The Prime Minister has repeatedly promised to maintain workers’ rights post Brexit. For example, she said at her party conference in 2016 that

“existing workers’ legal rights will continue to be guaranteed in law—and they will be guaranteed as long as I am Prime Minister.”

Only last month, she assured the House that her deal successfully safeguarded workers’ rights. Yet, as colleagues pointed out, this Government repeatedly voted down Labour amendments to the European Union (Withdrawal) Bill that would have required primary legislation if future Governments sought to reduce workers’ rights. With that rejection, our rights are left vulnerable to deregulation by ministerial diktat.

By not allowing new European works councils to form or having a contingency plan to replace them, the Tories would leave British workers at a disadvantage to their European Union colleagues. Will the Minister commit to reversing the decision to scrap European works councils?

The Government’s withdrawal agreement contains significant flaws with regard to workers’ rights. As was pointed out, one of the provisions of the backstop is a non-regression clause on labour standards, which would prevent either party from lowering protections below their current levels. However, it allows for some divergence, meaning that a UK Government would still be able to water down workers’ rights—a worrying possibility given this Government’s track record on labour protections.

Moreover, the non-regression clause would not require us to update our labour legislation alongside the European Union, meaning that over time we could end up with significantly poorer protections. That is a real concern given the growth of the so-called gig economy. Only last month, Tory MEPs joined the UK Independence party in voting against new rights for gig economy workers in the European Parliament. Will the Minister commit to updating workers’ rights in line with European best practice following the end of the transition period?

My party has pledged to protect workers and their hard-won rights, reject no deal as a viable option, and negotiate transitional arrangements to avoid a cliff edge for the UK economy and workers. We have pledged to ensure workers are represented on company boards and to require firms with more than 250 employees to set up ownership funds, making workers part-owners of their companies.

My party will make full use of the powers the state has, and should have, to build an economy that supports workers’ rights, trade union rights, innovation and industry in every region of our country, and that works for my constituents in Newcastle and for the constituents of the hon. Member for Henley (John Howell)—in short, an economy that works for the many, not the few.

--- Later in debate ---

[Chris Skidmore]

Apologies—the hon. Member for Glasgow South West (Chris Stephens). I was deeply impressed by the hon. Gentleman’s ability to speak through his vocal impairment; he was cutting quite loudly through it by the end of his speech. We also heard from the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) and, last but not least, the hon. Member for Stroud (Dr Drew), whom I thank for his generous congratulations on my fifth day in my new role.

[Chi Onwurah]

I regret that I did not take the opportunity to welcome the Minister to his new role and I wish him every success for the period he occupies it.

[Chris Skidmore]

I am deeply grateful for those kind words. I am getting stuck into the job by appearing at this debate, but I am here to represent the views of my Department as a replacement Minister. My hon. Friend the Member for Rochester and Strood (Kelly Tolhurst), the Minister for Small Business, Consumers and Corporate Responsibility, sends her profuse apologises that she has been unable to attend. She is representing the Department in the debate on the Accounts and Reports (Amendment) (EU Exit) Regulations 2018 in Committee corridor. I am here in her place to represent the Department’s views.

Let me start with what state aid rules are and why they exist, what is and is not state aid, and when it is allowed. Put simply, state aid is Government support or subsidy of an economic operator that gives it an advantage it could not get on the open market and distorts competition in the single market. The EU has tough rules governing the way subsidies can be given, to stop companies from getting an unfair advantage over their competitors and to ensure that countries with deep pockets do not subsidise their companies to the detriment of companies in other member states. However, where there are good policy justifications for state aid—where the benefit from giving aid outweighs the potential harm of a subsidy—the rules enable aid to be given.

Not all Government spending is aid. In fact, less than 1% of UK Government spending meets the technical definition of state aid. The state aid rules are about supporting fair and open competition, and the UK has long been a vocal proponent of them. The rules exist to stop countries from subsidising their industries unfairly, which would put businesses out of business and workers out of work.

A second misconception is that state aid rules prevent nationalisation. As long as the Government do not pay more than the market price for any assets acquired, the rules do not prevent that. However, the rules oblige the state to act as a normal market investor. That is good, because it prevents public authorities from unfairly distorting markets. State aid rules are neutral on public ownership and on the detail of spending decisions.

State aid rules are also fundamental to any free trade agreement. The political declaration on the framework for the future relationship between the EU and the UK recognises that. Free and fair trade is not possible if one party is able to subsidise without restraint. In a single customs territory that allowed the free trade of goods, as provided for in the draft withdrawal agreement, neither the EU nor the UK would be able to apply tariffs as measures against unfair subsidies by the other party. To ensure fair and open competition, it is absolutely necessary for the same state aid rules to apply consistently within the single customs territory, not to be frozen or disapplied for one bit of it.

I turn to workers’ rights, which have been the predominant topic of discussion. It is important to be clear that we are not making a choice between protecting state aid rules and protecting workers’ rights. As a responsible Government, we will work both to prevent unfair subsidies and to protect the rights of workers. The UK—we had several history lessons through some of the learned contributions to the debate—has a long-standing record of ensuring that workers’ rights are protected. Those include employment and equality rights, and protections for health and safety at work.

The decision to leave the European Union does not change that. This Government have made a firm commitment to protect workers’ rights and to maintain the protections covered in the Equality Acts.