Victoria Lee: Brexit is a chance to rewrite industry rules on state aid

“A fatal flaw of 1970s-style industrial strategies was the dominant focus on existing industries and the companies within them”, wrote Business Secretary Greg Clark. Instead “industrial strategy must be about creating the right conditions for new and growing enterprise to thrive, not protecting the position of incumbents”.

That may be so but it is essential – on exiting the EU – the Government establishes a transparent, enforceable aid, and investment policy framework. Such a policy should not only replace the EU state aid rules the UK is currently bound by, but also redress the regional imbalances that have favoured investment in London at the expense of the rest of the country.

Various UK business leaders, as noted in the Financial Times, do not consider the Government’s role is to pick winners, but instead to leave matters to business or focus not on individual companies but foundational needs like infrastructure and education. But leaving matters solely to business is not an option if Britain wishes to remain competitive and respond to the public’s dissatisfaction, articulated in its vote to leave the EU, that growth and prosperity have not benefitted all parts of the UK equally.

Britain is currently bound by EU state aid rules which have a dual purpose. First they prevent the old-style propping up of failing industries. Second they allow governments to provide aid to business to pursue prescribed policy objectives, for example “to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest”.

A hard Brexit is likely to mean Britain is no longer bound by state aid rules. Without any kind of replacement, however, UK companies will find it difficult to compete against European ones still assisted by them.

The European Commission, the executive arm of the EU, announced on February 13 its decision to permit Germany to spend 300m euros over four years in a measure to promote “the installation of new standard and high-speed charging stations for electric vehicles, as well as the extension of the existing infrastructure”. The purpose is to contribute to a key European strategy of reducing emissions. It is also a boon to Germany’s electric vehicle industry. Without any similar measure, the UK will be at a competitive disadvantage.

One reason Britain voted to leave the EU is public dissatisfaction with the lack of inclusive growth. Productivity is centred in London and regional disparities are worse than in France and Germany.

One reason for this disparity is the chronic underfunding of transport infrastructure in the North. Paying For Our Progress, published by think-tank IPPR North last month, noted that “there is a £1,515 per capita gap in projected spending between London and the North, while Yorkshire and the Humber is set to receive less than any other English region in per capita terms”. Yorkshire and the Humber voted to leave the EU by 57.7 per cent compared to the overall result of 51.9 per cent. In London only 40.1 per cent voted to leave.

The state aid rules work essentially at the national level. If, however, the Government is serious about making the economy work for all, it must have an aid strategy designed to counter these regional imbalances.

Transparency is essential. The rules which protect against unfair competition must be made public as a prerequisite to their enforcement, to protect a level playing field. So too must be the rules which are a tool to pursue legitimate public policy aims. What is legitimate is properly an issue for public debate.

Without transparency there will be deals like that with Nissan last October, where its chief executive announced that it would build two new models of car at its Sunderland plant following Government “support and assurances”.

Government aid is a reality. The UK has, for example, recently been permitted to provide support for the conversion of part of Drax power station from coal to biomass.

The dangers of not replacing the state aid rules with a transparent framework are that decisions may be influenced more by political expediency than sound policy, London will prosper at the expense of the rest of the country, and the pain of Brexit will be for naught.

Victoria Lee is a barrister, formerly at HMRC, and currently studying at Harvard Kennedy School of Government.