Membership of the EU stops arbitrary corporate welfare in the UK and expressly encourages aid for environmental protection, writes Ewan McGaughey. He explains how state aid rules work and how they empower the UK to get a New Green Deal. What stops us from changing the direction of the economy in this respect is therefore not the EU but Brexit.
‘Left Brexit’ or ‘Lexit’ advocates are pedalling a myth that EU law prevents the massive infrastructure spending we need to rebuild our broken economy and reverse austerity. Best represented by the ‘Full Brexit’ blog, it is said that state aid laws ‘prevent [us] from setting the direction of an industry, a sector, or the economy as a whole’. This is false. State aid rules stop arbitrary corporate welfare, but empower us to lead the fourth, green industrial revolution. In the EU, Germany spends among the most on state aid: about 1.3% of GDP, while the UK spends 0.5%. By closing this gap alone (and we could do much more), the UK could spend at least £30 billion each year for a massive New Green Deal.
State aid rules stop corporate welfare
Every democrat, every socialist, should want EU state aid law: it prevents arbitrary corporate welfare. In the US, state aid rules are non-existent. Corporations like Amazon use their bargaining power to force states and cities compete with offers of tax-breaks to build new distribution centres. Governments are lured into thinking their aid to corporations will bring jobs. But apart from the corrupt waste of public money, the evidence showed fighting for Amazon actually cut wages. EU law prohibits corporations playing governments off against one another like this. In 2016, the EU stopped Ireland from cutting corporate tax to get Apple headquarters. If anything, the state aid rules should be far stricter than they are, because we need human welfare, not unrelenting corporate greed.
EU state aid law says governments must not ‘distort competition by favouring certain undertakings’ (TFEU art 107(1)). Lexit advocates argue this protects a ‘neoliberal framework that avoids deploying state power against the market and private capital’. The opposite is true: it stops private capital capturing governments to enrich itself at society’s expense. Most importantly, EU law expressly promotes ‘aid having a social character’ for consumers that does not discriminate (art 107(2)), and expressly empowers aid for ‘environmental protection’, including infrastructure, tax incentives, even education (Regulation 2014 (EU) No 651/2014 arts 1(c) and 36-49). The rules mean governments can’t discriminate, favouring crony capitalists, when spending public money.
The critical fact is that state aid law restricts giving money to fund corporate profit. But the UK government could also spend an unlimited amount of money by carrying out public work (TFEU art 345) or building through public procurement. We can reset the direction of ‘the economy as a whole’ any time we want. What stops us is lazy thinking, and the lack of a plan, not the EU. More than ever, as the great labour lawyer Lord Wedderburn wrote, we need ‘hard legal analysis allied to an alternative social vision’. The claim that EU state aid stops a green revolution is a sell-out to multinational corporate propaganda.
A £30 billion New Green Deal
We need a massive New Green Deal, to stop our planet burning and drowning. Raising our state aid, even by 0.8% of GDP to match Germany, would mean £30 billion a year, and our future transformed. Estimates vary on how much money we really need. In 2009, an Imperial College London institute advocated spending 0.7% of GDP. In 2018, Thomas Piketty and other leading economists advocated an EU-wide €800bn stimulus, spending 4% of GDP. What’s absolutely clear is that deficit spending – the public becoming more indebted to multinational banks, and breaking the EU stability and growth pact – is the wrong way to do it. We must stop corporations hoarding cash and restricting investment, and make them pay their fair share of tax. When we do, we will transform (1) energy generation, (2) transport, and (3) corporate production and governance.
First, we must shift our energy generation to solar and wind – and scrap coal, gas and oil. The more we build, the more costs will fall. The Moray East offshore wind farm is costing just £2.6bn, generating 950 MegaWatts, enough for nearly 1 million homes. There are just over 27 million homes in the UK. The maths is simple: in a 5 year Parliament, £150 billion would cover every home with renewable energy, with over £40 billion to spare. And these quick, rough calculations are incredibly conservative: 1/3 of UK electricity is already renewable.
Second, we need to electrify our entire transport fleet, starting with taxis, buses, delivery vehicles, and rail. Your personal car does not matter so much for now, because 96.5% of the time it’s parked. But business vehicles drive, and pollute, constantly. Petrol and diesel vehicles are currently subsidised by tax-deductions. Yes, that’s right: the smog in your air, filling our children’s lungs at school, is being subsidised. Volkswagen diesel engines alone probably killed around 240 British people. We should end this now, and only subsidise electric vehicles. As more are bought, costs will drop, reducing the green subsidy cost to zero. All new Hackney carriages (but not Uber or minicabs) in London must already be electric. The same tax reform would electrify all delivery vehicles: all vans, all trucks. Then, every new bus. Just north of Hong Kong, the city of Shenzhen has already electrified its entire 16,000 bus fleet (London has 8,000). Then we must get our ‘paltry 42%’ of electrified rail up to 100%, and install electric charging points from the Cairngorms to Cornwall. Instead of Brexit-Britain (or more likely the United Kingdom of England and Wales), we can build infrastructure to re-unite the country.
Third, we must reform our corporate production and governance. Engine manufacturers need help to switch off all oil vehicles, and switch on electric. BP, Shell, and the rest, instead of drilling and fracking need to phase out that business, go ‘beyond petroleum’, and become renewable network services. This has already begun, and must accelerate: workers who used to lay oil pipe-lines in the North Sea are now employed laying electric cables to windfarms. Transition requires state aid, but not without conditions. Every boardroom needs an environmental committee, meaningful employee representation, and in natural monopolies the public needs representation as well. Government should purchase a strategic stake of 5% to 25% in the shares of vehicle manufacturing companies, and use governance voice to retool for sustainable production. We should recognise that all corporate directors have a duty to switch to clean energy (under the Companies Act 2006 section 174) because it saves money, creates jobs, and preserves a living future. There are no profits or jobs on a dead planet.
As Brexit reaches its climax, we have a fundamental choice. We can choose to be an impoverished, divided, dirty island. Or we could be a United Kingdom in a European Union, leading a ‘zero carbon, zero poverty world’. Every step we take toward that world has to be done in ever closer union with other countries, because we are one people, and we have one planet to call home. If you believe in democracy, socialism, and internationalism, it’s clear there is no ‘Left Brexit’. Our membership of the EU empowers a massive New Green Deal, stops corporate welfare, and gives us the influence for meaningful change. Being an active member of the international community, including the European Union, enhances our sovereignty in building a just society.
Ewan McGaughey (@ewanmcg) is a Senior Lecturer at the School of Law, King’s College, London. He teaches enterprise law, labour law, contract law, and constitutional law.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
Though a latecomer to this conversation, a few words may be useful regarding the superior role of government expenditure as distinct from the same amount spent through the profit-seeking sector.
Australian economic history rejects the “crowding out” (of private investment by ‘excessive government investment’) and “inferior value” (tax cuts do greater economic good than equivalent budget expenditures) hypotheses, notwithstanding their popularity with the rent-seekers; private investment generally varied and prospered with public investment, not inversely to it.
Throughout the nineteenth century public investment provided the people with urban and rural infrastructure at a remarkable rate: the years from 1860 to 1890 when public investment was highest as a proportion of all investment were the years when Australian income per head was among the highest in the world.
Direct public provision of a wide range of social and economic services (such as free, universal child-care, public housing, aged-care, and public health) is not only far cheaper than the corruption and waste of the contracting out / flogging-off / funder-purchaser-provider models, but will also – assuming sober and responsible management – mean all the difference between modest comfort and poverty for very many people.
For the Australia of today output increases by $1.20 for every extra government dollar spent – meaning that today too such expenditures benefit everyone.
The cited Articles are either ambiguous (diametrically opposed ideologies/policies can claim to promote “the common interest”) or do not support the author’s assertions.
The biggest obstacle to a big Green New Deal is the belief that public spending is, or ought to be, revenue-constrained like a household budget, A belief reinforced by this author and the so-called “stability and growth pact”
Thank you for writing a thought provoking article.
I’ve worked in Central Government distributing public funding and also at DG Competition on State aid matters, so this is a subject close to my heart.
It saddens me that State aid law is often misrepresented for political ends. It’s simply a tool for ensuring a level playing field for businesses. The UK has championed the State aid rules for two decades because they promote good financial principles, such as only providing public funding for identifiable costs.
If used correctly they can protect Central Government (and thereby the taxpayer) by acting as a safeguard against companies playing off particular public bodies or companies off against each other. Furthermore they are rarely a block on good projects, 97% of State aid is awarded under the GBER and in over 10 years I only saw one project that couldn’t be funded.
The Eu doesn’t give us any money, we are a net contributor getting some back after the Eu has taken its cut is not a handout.
Therefore to say that EU Treaties can facilitate socialist state aid and in particular a socialist green new deal is misinformation. The EU Treaties will only facilitate neoliberal state aid and a neoliberal green new deal.
Under EU Treaties, a green new deal would be still be subject to competition rules and as such EU Treaties would only allow a market based green new deal that ensures that EU corporations can continue undercutting local suppliers and local wages. Similarly, state aid in such circumstances would be under the constant review of the EU Commission and investor dispute mechanisms would still apply.
So the question is not whether EU Treaties facilitate a Green New Deal or not but is a question of whether EU Treaties prevent Central Governments from awarding contracts to home grown industries in order to build up long term resilience of communities. The answer is that preferential contracts are not permitted and so like the QE that is paid for by the ordinary European taxpayer, public works automatically become the means by which the Private Sector can benefit from the Public Sector with no democratic accountability whatsoever.
Out of the EU, we can make our own rules and roll out a green new deal that prioritises the economic wellbeing of our local communities, not the economic wellbeing of EU corporates as per current EU Treaties.
“We can choose to be an impoverished, divided, dirty island. Or we could be a United Kingdom in a European Union, leading a ‘zero carbon, zero poverty world’”
not a worthy comment. Particularly given this.: https://www.climate-change-performance-index.org
UK doing quite well compared to the rest of the EU.
This wouldn’t be unfair, Dipper – but I was trying to suggest (perhaps not very well) that we risk becoming a divided, dirty island if a ‘no deal’ Brexit would ever occur, and even if we follow the Withdrawal Agreement (which doesn’t keep us up to EU standards as they evolve). I was thinking of the way that Trump has gutted the Environmental Protection Agency in the US. But certainly the UK has been doing okay compared to other countries so far: I fear that it’s still far, far to little.
Such an enlightening read during these days when the UK is so divided and the biased press continue to poison minds that being a EU member means ‘being dictated to’.
It’s just an example of the freedom we do have and how the Government is to blame for not using its powers to improve lives. If they are not giving directives to implement these necessary changes with a New Green Deal now, they absolutely won’t after Brexit.
We must remain a member, stop this lazy thinking and get up to speed to make a progressive, clean environment for future generations and the world.