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

Debate between Dan Poulter and Laura Smith

Tuesday 11th December 2018 Westminster Hall

[Laura Smith]

I agree with the points that my hon. Friend makes, and I share his concerns.

Economic democracy can empower groups and individuals who are otherwise excluded. Involving workers, the public and other stakeholders in economic decision making has both societal and economic benefits. Democratic participation can also enhance the effectiveness of publicly owned enterprises by tapping into grassroots forms of knowledge and the direct experience of employees and users of public goods and services. Democracy, if we are to view it as a vital part of popular sovereignty, must extend far beyond the ability to elect Governments every now and then. The active exercise of individual worker and community member ownership rights is a prerequisite of genuine democracy.

If those campaigning to leave the EU were at all serious about taking back control for the British people, they will recognise the role that democratic public ownership can play in tomorrow’s economy. It can be used to mobilise our economy in pursuit of other policy objectives. For example, democratic public ownership of our energy system could allow us to put tackling climate change at the heart of our energy system in a radical way, while protecting the industry’s workers throughout any energy transition. It is popular: opinion poll after opinion poll demonstrates that the public are crying out for more public ownership, even given the option of “whatever works”.

EU law specifically allows for the public ownership of a service provider, yet the treaty that contains that provision also sets out an economic policy based on an open market economy, with free competition and the liberalisation of services given special status. Some commentators have suggested that remaining subject to EU law will make the reversal of market liberalisation highly problematic for a UK Government who wished to do that.

To take the postal service as an example, the third postal services directive, adopted in 2008, established a clear floor for the postal market, ensuring that collection and delivery take place at least five days a week. At the same time, it has promoted competitiveness for its own sake, which has driven down standards and posed a threat. It fails to see the market as a natural monopoly, and insists that it must remain fully liberalised, restricting the UK Government’s ability to eliminate the market to sustain the publicly owned provider.

Although public ownership of the carrier is not prohibited, it is difficult to see how a UK Government who remain subject to EU law could create a public monopoly with workers and service users at its heart, and with the necessary cross-subsidisation to allow such services to thrive. As far as I am concerned, a true level playing field would establish regulations to ensure that private sector carriers could not undercut prices, and would include a re-establishment of collective bargaining, which I will mention later.

There are similar challenges in the energy sector. The European Court of Justice’s Essent ruling found that the Dutch ban on private ownership of shares in the energy sector amounted to a breach of free movement of capital. The experience in Germany shows that it is possible to create publicly owned energy companies to rival private energy suppliers, but only within the parameters of EU competition law. The recent fourth railway package poses similar challenges in the rail sector.

I briefly draw hon. Members’ attention to a recent dispute at Royal Bolton Hospital. In Alemo-Herron, the ECJ ruled that private employers that take on the provision of public services cannot be required to pay transferred staff the pay rises that they would have had if they had remained in the employment of the public sector. By prioritising the rights of private companies to business freedom over the rights of workers who find themselves in that situation, EU law creates a financial incentive to privatise our public services.

On state aid and public procurement, I recognise that the UK has not made full use of the flexibilities on offer to it as a member state. As with all other aspects of the debate, I do not blame the European Union for the pursuit of neo-liberal policies by successive UK Governments. This Government have certainly not needed any encouragement in that respect. I also accept that there will always have to be some rules to facilitate fair trade, but the EU state aid rules are far more stringent than those in the WTO subsidies regime.

Earlier this year, I called on the Government to provide funding to cover the cost of pay owed to care workers who were found to have been paid less than the minimum wage. The failure to do so risked bankrupting care providers and putting many vulnerable people at risk. The Government, however, had to discuss the issue with the European Commission because of concerns that state aid rules would prevent them from taking such action. I am not sure whether those discussions reached a conclusion before the Court of Appeal’s July ruling.

In addition to restricting the UK Government’s ability to react to certain economic events that threaten our industries, those state aid rules can restrict our ability to intervene proactively to support individual industries or domestic supply chains as part of a comprehensive industrial strategy.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

I thank the hon. Lady for giving way and congratulate her on securing the debate. She is making some fair points, but I take issue with the last one. There has been a very effective deployment of state aid to expand broadband provision throughout the United Kingdom, which she surely welcomes as a positive boost to the UK’s infrastructure, and to help our public services. There are some good stories to tell, despite the general recognition that the level of state aid in the UK is much lower in comparison with that in many other EU countries.

[Laura Smith]

I thank the hon. Gentleman for his intervention. I know everybody says this, but I will come to that later, when I address broadband specifically. I agree that improving that infrastructure is essential.

The recent research from the IPPR that I mentioned earlier concludes that the public place more weight on returning powers to expand the use of state aid than to deregulate, with 53% showing a preference for allowing the Government to support and protect our industries, while only 26% preferred conformity with EU state aid rules to secure a far-reaching EU trade deal.

The variation in WTO-plus agreements suggests to me that a bespoke trade deal could, in theory, include room for structural subsidies. Those could, for example, support industries of particular national value or natural monopolies, where cost reductions would be beneficial and would have no impact on other countries. In that sense, Brexit offers an opportunity to redefine what a true level playing field looks like.

The Communication Workers Union suggested that there would, in theory, be a strong argument for rolling out superfast broadband everywhere, supported by the state, which takes us back to the point made by the hon. Member for Central Suffolk and North Ipswich (Dr Poulter). Not only is that a natural monopoly, but it is a driver of social and economic wellbeing, as he pointed out. A similar argument could be made for our post office network.

With regard to the withdrawal agreement as it stands, the Attorney General has made it quite clear that in the backstop, restrictions on state aid are hardwired, and new restrictions could be introduced even if they are not in our national interest. I would be grateful if the Minister clarified whether he expects our future relationship with the EU to be substantially different or based on a parallel system. In the same way, the EU procurement directive is far more restrictive than the WTO agreement on government procurement. I would support, for example, limiting eligibility for public procurement contracts to companies that can demonstrate ethical maximum pay ratios and gender pay ratios, yet the EU procurement directive raises questions as to whether that would be compatible with single market rules.

There will undoubtedly be risks to workers’ rights if we leave the EU. Parliament is currently considering a deal that refers only to “non-regression”, when it would surely have been possible to ensure that British workers enjoy at least the same statutory rights as their European counterparts, as part of what I would describe as a genuine level playing field. We must also consider collective bargaining. I do not want to stray into a debate on the benefits of collective bargaining, but suffice it to say that I believe that rolling out sectoral-level bargaining will bring far more than just improvements to workers’ wages or employment conditions, and, alongside other reforms, it can give workers a real stake in their industries, and is another prerequisite for democratising our economy.