David Gauke: Without a proper state aid regime, the UK is unlikely to make a deal with Brussels

1 Aug

David Gauke is a former Justice Secretary, and was an independent candidate in South-West Hertfordshire at the recent general election.

Within the next three months, Boris Johnson is going to have to make the decision that will define his premiership and determine the future of British politics – especially the Conservative Party – for a generation. And the subject matter of this momentous decision? The previously obscure issue of the regulatory regime constraining the ability of the Government to provide taxpayer support for private sector companies. In other words, state aid.

Before turning to the issue in hand, let me set out a little context. My last two columns (here and here) have made the case that there is an electoral logic that points towards the Conservative Party moving in a leftwards direction economically but in a rightwards direction when it comes to social issues or, to put it more precisely, issues of national identity. Politics appears to be realigning as the biggest dividing line ceases to be about economic class or ideology but in relation to cultural issues.

The consequences of such a dividing line – and the Conservative Party unambiguously placing itself on one side or the other – is an uncomfortable one for those Conservatives with a desire for intellectual consistency.

At least since Margaret Thatcher’s premiership, the Conservative orthodoxy has been in favour of sound money and free trade. That is not to say that the State had been banished from making any kind of intervention in the economy – no recent government could accurately be described as laissez faire – but that any such intervention would be made carefully, recognising that the market was, by and large, a rather good way of allocating resources.

As for cultural issues, the Conservative Party has been a broad church consisting of social conservatives and social liberals, tub-thumping patriots and committed internationalists. Generally, we rubbed along alright.

These Conservative traditions were abandoned in 2019, resulting in the Prime Minister’s electoral triumph in December when he won previously safe Labour seats. He did so by promising an economic policy that involved more spending and greater government intervention. He also promised to deliver Brexit at whatever cost. It was an uncompromisingly Leave prospectus that appealed to patriotic/English nationalist working class voters.

This brings us to the UK/EU negotiations over a comprehensive Free Trade Agreement. Contrary to promises of an oven-ready deal, discussions have not yet made a lot of progress. There are two sticking points. The first is fish. This is a matter of economic irrelevance (our fishing industry contributes less to GDP than Harrods) but of disproportionate political importance. As one can make a similar point about the EU, it would be an extraordinary failure for this matter to prevent a wider deal being reached.

The more substantive issue relates to the level playing field provisions. These are the EU’s requirements that the UK will not engage in “unfair competition” by undercutting the EU’s social and environmental legislation, nor provide anti-competitive subsidies.

The UK Government’s response to these demands has been to argue that this is an outrageous attempt to fetter the actions of a newly-independent nation. Given that (1) free trade agreements inevitably involve accepting some restrictions on a country’s ability to determine its own rules and (2) the UK accepted the principle of level playing field provisions in October’s Political Declaration, the EU is less than impressed by the argument.

The particular focus of the dispute has been state aid. At one level, this is surprising. The UK has traditionally eschewed state aid spending, seeing it as market-distorting and a wasteful use of taxpayers’ money. We spend less of it than the French and Germans and, as EU members, consistently argued against its use.

Nor has it traditionally been a touchstone issue for Eurosceptics. From my days in the ERG, I recall plenty of conversations about how the EU imposed regulatory burdens on businesses, prevented trade deals with rising economies like China and resulted in too much power in the hands of the unelected (oh, happy innocent days). Restrictions on bailing out private sector companies were not so much of problem for us Thatcherites.

This issue could have easily been de-escalated if we had put in place our own, independent and robust state aid regime, perhaps enforced by the Competition and Markets Authority. Such a regime is probably necessary (albeit not sufficient) in order to reach a compromise with the EU on this topic.

Instead, we have refused to set out our own domestic regime and there is much talk of how we can use our new freedoms as ex-members of the EU to support our own companies, like the rather odd acquisition earlier this month of a £400 million shareholding in a failed satellite company.

According to the Financial Times, Dominic Cummings is digging in against anything other than a “minimal, light-touch” state aid regime, believing that once you have left the EU “you should just do whatever you want”.

This brings me back to the nature of the Conservative victory last year and, in particular, the new supporters. If the Government’s focus is appealing to nationalists who favour an interventionist state, it would want the ability to back national champions or other businesses in favoured locations.

And if you are temperamentally inclined to think that any constraint on your ability to “do whatever you want” (whether by the EU, Parliament or the legal system) is an affront to democracy, then you will be all the more the likely to resist a robust and independent regime.

There are, however, consequences. First, it is very hard to see how the EU will agree to a deal if the UK does not have a proper state aid regime. I wrote in February how there may be a political case for not getting a deal (any deal will be very thin in any event, some parts of the economy will suffer as a consequence of leaving the Single Market, better to collapse the talks and blame the EU for the consequences) and that argument still applies.

But, as a consequence of the handling of Covid-19, the Government is more vulnerable to the charge of incompetence. In addition, a no deal Brexit would be a gift to the SNP, thus weakening the Union yet further.

Second, even putting aside the EU dimension, there are very good arguments for having in place a robust state aid regime. The Treasury will be arguing the case. Both as a finance ministry (ensuring that taxpayers’ money is spent wisely) and as an economics ministry (wanting resources to be allocated productively in order to maximise economic growth), it institutionally hates state aid. Presumably, the Chancellor of the Exchequer, well-regarded by his officials, will have similar views and will be making the case forcefully. At least, he should be.

It will be for the Prime Minister to decide. Go for the purist view of Brexit (“you do whatever you want”), embrace the new political alignment and splash the cash in order to play to the Red Wall voters. Or keep open the possibility of a deal, look after the interests of taxpayers and maintain some kind of consistency with economic orthodoxy. Whichever way he goes, it will be a hugely consequential and revealing decision.

David Lidington: Why I profoundly disagree with my friend and former colleague, David Gauke

7 Jul

David Lidington was the MP for Aylesbury from 1992 to 2019, and has held a number of roles including Lord Chancellor and Secretary of State for Justice.

Last Thursday, in a piece that was characteristically both thoughtful and thought-provoking, my friend and former Cabinet colleague David Gauke came to a pessimistic conclusion. Choices had been made, he argued, which compelled the Conservative Party to pursue “the war on woke and Rooseveltian economics”. Implicit in his analysis was the suggestion that those whom he termed “small state free marketeers and one nation social liberals” had no future in the party and might have to look elsewhere.

I profoundly disagree. Throughout the 45 years that I’ve been a member and for decades before that the Conservative Party has been a coalition. Economic liberals, defenders of traditional values and institutions, social reformers, blue-green environmentalists: all have found a home. Different leaders of the party, at different times have chosen to emphasise different elements of the broad Conservative tradition.

As Paul Goodman pointed out yesterday, human beings tend not to fit neatly into a single, neat political category. Margaret Thatcher was strongly in favour of opening up broadcasting to greater competition and market discipline. Yet she was also passionate about the need for high standards of decency in what was broadcast – which meant intervention and regulation. I have crossed swords with Iain Duncan Smith many times over Europe, but have also admired his efforts to promote a Conservative approach to social justice.

The present government’s commitment to “level up” the opportunities available to people living in towns and estates that have for years felt left-behind and ignored will need to draw on all strands of Conservative thinking if ambition is to be realised: incentives for free enterprise to create wealth and jobs, and government action, both national and local, to provide modern infrastructure, drive urban regeneration and boost expectations and outcomes in education and training.

For years, Conservatives have fretted about our loss of support in old industrial areas and among people on lower incomes. The fact that we now represent seats in County Durham and South Yorkshire as well as Surrey and Sussex is something to be celebrated: it gives our words about standing for One Nation much greater credibility.

If a successful policy of levelling up (and at the same time improving our chances of holding those seats) means a tilt towards the economic and industrial policies of Macmillan, Heath and Heseltine, it should be seen as a pragmatic response to the needs of the times, certainly meriting debate and argument, including within the Conservative family, not some heretical departure from the one true faith.

Nor do I share David’s pessimistic conclusion that there is an inexorable electoral logic which must compel the party to abandon the ideas, policies and perhaps even the support of liberal Conservatives.

By 2024 the Conservative Party will have been in office for 14 years. The coming economic storm, even if, as we all hope, it is short-lived, will have left many people scarred. The Labour Party will be led by someone who is not Jeremy Corbyn. The temptation to vote “for a change”, to “give the other lot a chance” will be strong. It will be as great a challenge to secure re-election then as it was for John Major in 1992. We shall need every vote from as broad a coalition of support as we can.

Of course we shall want to hang on to traditional Labour supporters who lent us their votes last December, which in turn means that in four years time they need to see that we are at least beginning to deliver results for their families and neighbourhoods.

But that on its own won’t be enough. By 2024 there will be about three million new electors on the register who were too young to vote in 2019. According to YouGov, at last year’s election the tipping point – the age at which someone is more likely to have voted Conservative than Labour – was 39.

That is better than 2017, when it was 47, but still leaves no room for complacency. While it is possible that those who were in their teens, twenties and thirties in 2019 will automatically shift into the Conservative column by 2024, we cannot count on it happening.

In any case, we ought to be seriously concerned that so many people in their twenties and thirties – working, paying tax and often holding both professional and family responsibilities – should have preferred Jeremy Corbyn’s socialism to what we had to offer.

To win again in 2024 we shall need to secure support from more younger voters than we did in either of the last two elections and to do that will mean reaching out to people whose values are, in the convenient shorthand, more “socially liberal” than those of their parents and grandparents, and who want to see political parties to take seriously their concerns about issues like the environment.

Next year, the Prime Minister will host a world summit on climate change. The Glasgow conference will be an opportunity for the United Kingdom and its Conservative government both to showcase its own ideas to address the climate emergency and to demonstrate global leadership on the issue.

In recent years, “green” policies have been identified with the liberal wing of the party. David Cameron took a lot of flak early in his leadership for focusing on this agenda.

Again, it’s easy to oversimplify: I’m old enough to have been in the audience at the party conference in 1988 to hear Mrs Thatcher declare that: No generation has a freehold on this earth. All we have is a life tenancy – with a full repairing lease. This Government intends to meet the terms of that lease in full. The key point is that it will be both right and in our electoral interests to take action on the environment and to be seen to do so.

Another political reality that the party must grapple with is the fact that voters from British people of Caribbean, Asian, African and central European heritage make up a significant proportion of the electorate in a growing number of constituencies.

Yet again, we need to beware of oversimplification. Many of my former constituents from Pakistani, Indian and Polish backgrounds are on the social conservative rather than social liberal end of the spectrum. They are certainly a long way from being “woke”.

But they care passionately about racism – sadly almost always because they and their children have been at the receiving end of abusive or insensitive comments – or worse. They judge politicians in part by how they handle these matters. Community relations and anti-racism are causes that, like the environment, have been championed within the Conservative Party by its liberal wing and, once again, are issues where our electoral interest coincides with what it is right to say and do.

The Conservative Party’s electoral success has rested in large measure on its ability and willingness to adapt to the realities of social and economic change. Far from giving up in despair, liberal, centrist Conservatives should redouble our efforts to influence the party’s thinking about how we can win again in 2024.