TUC: EU state aid rules “no excuse” for government failure to ‘level up’ UK

26 Oct 2020 12:52 PM

The TUC recently (Friday) called on the government to stop using EU state aid rules as an excuse for its “repeated” failure to invest in jobs and industries in held-back parts of the country.  

The criticism comes as the union body releases analysis which shows how progressive state intervention in support of jobs, businesses and inclusive growth is compatible with both the current state aid rules and a future trade relationship based on a level playing field. 

The TUC says there are wide-ranging examples of how the UK and other European countries have used state intervention to support industries and protect decent jobs under the current set of rules. 

Those examples include in 2012 when the government bowed to Unite and TUC pressure on the Ellesmere Port Vauxhall plant threatened with closure, which led the then business secretary Vince Cable effectively injecting state aid under the budget heading of ‘skills’. 

UK “hides behind” state aid rules 

The TUC says too often the UK “hides behind” state aid rules, pointing out that in 2018 Britain spent just 0.34% of GDP on state aid, compared to 1.45% in Germany and 0.79% in France.  

The TUC also says that the UK has repeatedly, and wrongly, used the EU rules as an excuse not to step in to help Britain’s under-pressure steel sector. Adding that so far, the Chancellor has been reluctant to provide sector-specific support for industries facing tough times due to the pandemic. 

The future of the state aid regime is currently being negotiated and, as of yet, it is unclear what shape it will take. It has been identified as one of the key stumbling blocks to a deal being agreed. 

The TUC says this should not delay investment and that there is an urgent need for government to intervene in the economy now with targeted sectoral investment to save jobs and businesses.  

Principles for future regime 

The TUC has set out five principles which should guide the development of the UK’s post Brexit state aid regime:  

• Support decent jobs through social clauses in public procurement to drive up employment, labour standards, skills and environmental outcomes. 
• Achieve accountability through transparency to ensure citizens and elected representatives have easy access to information on who runs which parts of our public services and where taxpayer money is being spent. 
• Use strategic funds in support of regional development, decent work and employment standards with a key role and voice for devolved authorities and social partners, including trade unions.   
• Target support for industries and companies and their long-term development, with conditions attached in support of decent jobs, contributions to the UK economy and tax base – including taking equity shares on a ‘something-for-something’ basis.  
• Help us get a good trade deal that benefits jobs and communities by maintaining a ‘level playing field’ with the EU 

TUC General Secretary Frances O’Grady said: 

On state recently said: 

“The prime minister keeps saying he wants to ‘level up’ the country. Now he must put his money where his mouth is. 

“There’s no excuse for the repeated failure to invest in jobs and industries in parts of the country that need it most. Ministers must stop hiding behind state aid rules. 

“Investment in hard-hit sectors is urgently needed but the government seems content to sit on its hands while the fate of millions of jobs and livelihoods hangs in the balance. 

“Instead of pointing the finger at the EU, the government must invest in industries like aviation, retail, the arts and hospitality that are all in dire need of targeted help.” 

On the status of negotiations with the EU: 

“The prime minister is playing poker with people’s jobs and livelihoods by threatening to walk away from negotiations 

“A no deal outcome – or a bad deal that doesn’t safeguard jobs and workers’ rights – would be a betrayal of working people and would push us further into the depths of an unemployment crisis.  

“Our message is clear. Get back around the negotiating table and agree a good trading deal with the EU that protects jobs, workers’ rights and the Good Friday Agreement.” 

Editors Notes

Examples of government failure to support industries and protect decent jobs under the current EU state aid rules: 

• Most defence procurement is already exempt from compulsory competitive tendering under Article 346 of the Treaties of the EU. Despite this exemption, the government chose to put £2 billion worth of shipbuilding contracts out to international tender at a time when jobs were under threat in UK yards  
• The UK government failed to support investment to keep the Orb Newport electrical steel plant going and failed to see the wider potential for electrical steels at the Orb which are vital to the decarbonisation of the economy. The works had been the only producer for electrical steels across Britain. However, in 2019 the site was put up for sale by Tata without any success and ceased operations in 2020. The electrical steels produced at the Orb could have been an integral part of a new supply chain for electric vehicles. The failure of the UK government to grasp such an opportunity is set to cost the economy more than £1bn over the next decade, according to research for Community the Union.  

Examples of government intervention to support industries and protect decent jobs under the current EU state aid rules: 

• In 2016 then prime minister Theresa May imposed some conditionality on a foreign takeover of UK producer of microprocessors Arm Holdings. This required that the Japanese buyer double the workforce (from the existing 2500) and keep Arm’s headquarters in Cambridge for five years – a pledge that expires in July 2021. 
• In 2020 Project Birch was launched – a scheme for firms struggling during the coronavirus crisis, which consists of direct financing by taxpayers of strategically important UK businesses. The support consists of direct loans from the state, with a stipulation that the government will take a stake in the company if the loans are not paid back. So far only a handful of businesses have reached the final round of talks, one of these is Celsa UK, the first taxpayer-funded bailout under the project. As part of the loan, which is expected to be repaid in full, the company must meet a series of legally binding conditions, including commitments to protect jobs, to meet climate change net zero targets, and place restraints on executive pay and bonuses. 
• A copy of ‘Levelling up the UK: the role of state aid’ can be found here