Johnson sees no-deal as better than surrender
EU demands for a level playing field on state aid would stymie No 10’s ambition to build tech giants to take on the world
James Forsyth
Thursday September 03 2020, 5.00pm, The Times
Share
https://www.thetimes.co.uk/edition/comment/johnson-sees-no-deal-as-better-than-surrender-t5sf30chw
https://twitter.com/intent/tweet?te...es-no-deal-as-better-than-surrender-t5sf30chw
https://www.facebook.com/sharer/sha...es-no-deal-as-better-than-surrender-t5sf30chw
https://www.thetimes.co.uk/edition/comment/johnson-sees-no-deal-as-better-than-surrender-t5sf30chw
Save
https://www.thetimes.co.uk/edition/comment/johnson-sees-no-deal-as-better-than-surrender-t5sf30chw
The chances of a Brexit deal have receded significantly over the summer. Inside No 10, they now think there is only a 30 to 40 per cent chance that there will be an agreement. The sticking point isn’t fish — I’m told that there is a “deal to be done” there — but state aid, the question of how much freedom Britain should have to subsidise companies and industries.
At first, this seems odd. This country has long been sniffy about the idea of “picking winners” and uses state aid relatively rarely. It made up 0.34 per cent of GDP — less than half the EU average of 0.76 per cent according to the European Commission’s State Aid Scoreboard. By contrast, German spending — at 1.45 per cent — was almost double it.
So, what’s the problem? Well, the EU worried that Boris Johnson’s levelling up agenda was code for pumping huge amounts of money into the north of England in industrial subsidies. Consequently, it demanded that Britain carry on following EU state aid rules even after Brexit.
This demand was clearly too much. Even Michel Barnier seemed to accept this, and over the summer there were clear indications that the EU was prepared to give ground on the issue. Instead, Brussels emphasised that it wanted to see what kind of subsidy regime the UK was proposing and assess whether that would maintain the so-called “level playing field”. In other words, check that it didn’t deviate much from the current EU system.
As Barnier has publicly complained, Britain has not done this. There’s a feeling on the EU side that they have moved on state aid, and Britain has not reciprocated.
No 10’s unwillingness to publish a subsidy regime has led to head scratching in Tory circles. Without it, there will be demands for the government to help every time a factory is about to close. It all risks going a bit 1970s, with the state trying to keep the modern-day versions of British Leyland going.
But the real sticking point isn’t about car manufacturing or other traditional industries, but technology. The Johnson government wants to use the power of the state to mould and develop what it sees as the industries of the future. One figure with intimate knowledge of the negotiations and how they link to domestic policy tells me “state aid is critical if you are going to try and shape markets in technology”.
SPONSORED
Is this the perfect sunshine escape?
Say goodbye to rose-tinted Glastonbury glasses with 8 festival fails
There is a short-term concern too. There is nervousness in government that a new state aid regime could limit Britain’s ability to deal with Covid and prepare for future pandemics. The fear is that such a regime might limit the government’s ability to pump money into companies offering health tests, for example. But this problem could be solved with a bit of imagination. The EU has already suspended various rules during the Covid crisis and it is not impossible to think that some time-limited pandemic preparedness carve-out could be a part of any deal.
The bigger issue is Britain’s desire to use state aid to build up its own technology sector. The view in Downing Street is that this country needs to develop large technology companies at scale and that requires state involvement.
The concern is that unless the UK can do that, it will end up a technological vassal — reliant on either the United States or China, both of whom are unafraid to use the state to shape these markets.
Just think of the Huawei 5G debacle. As technology advances, there will be more and more cases where — unless there is a domestic supplier — the government will have to decide how comfortable it is depending on a foreign company, often with close links to its government, for the infrastructure that any successful 21st-century state is going to require.
The view in Downing Street is that this ability to use state aid is so important that Britian can’t back down on it. One of those closest to the prime minister is insistent that “no deal is better than compromising on the thing that Brussels is insisting on”.
But the EU views state aid as a key part of the level playing field. If Britain is going to use it to try to spur the creation of domestic technology sectors that can compete on a global level, that has implications for them. This is what makes the impasse unlike other moments when the Brexit talks have seemed doomed only for everything to come right in the end. This time the problem isn’t that the two sides are talking past each other, but that they understand each other too well.
Set against this is the realities of no deal. Covid has laid bare the failings of the British state. Given this, the willingness to put it through the stress test of no deal seems surprising. Indeed, a growing number of cabinet ministers are becoming keener for an agreement, believing that given all the other challenges winter will bring, the government doesn’t need any more problems to deal with. But those around Johnson believe that because the state has already prepared for no deal three times, it should be relatively well set for it.
Then there is the fact that no deal would pose two difficulties for the Union. First, it would highlight the ways in which Northern Ireland is treated differently because of the Irish protocol on Brexit. Second, Nicola Sturgeon would seize on any disruption to argue that this was another reason why Scotland would be better off out of the Union.
Perhaps the strongest argument against leaving without a deal, though, is that it wouldn’t be the end of the matter. Britain and EU economies are so interlinked that there would have to be another go at reaching agreement. The EU could take a hardline approach on border checks to try to force Britain back to the negotiating table.
But those around Johnson are optimistic that if this country can weather the first few months of no deal, then talks might resume in the second half of 2021 and they might be able, from there, to negotiate the Canada-style free trade deal that remains their preferred option.
It is tempting to imagine that all this talk of no deal is just more Brexit theatre; that the table will be kicked over in one last fight with Brussels, and then a deal will be done at the last with both sides claiming victory. But Boris Johnson is adamant on the state aid point.
He sometimes quips that “only three people in government agree with me” on the whole question of how ambitious — or purist — to be on Brexit, but he is convinced of his position. Unless the EU moves further on state aid, he won’t do the deal.
James Forsyth is political editor of The Spectator
Boris Johnson
Boris is adamant on state aid in the context of the trade deal. He was more adamant on the Irish Sea border. Where did that end up?
