Jeremy Corbyn is wrong on the EU

The UK Labour leader, Jeremy Corbyn, is wrong to believe the EU environment inimical to a radical government. He should support a second ‘Brexit’ referendum.

Charles Enoch

There has been much focus in the United Kingdom on the key issues put forward by those on the right who want the UK to leave the European Union—principally their desire to cut immigration. There has been much less focus on the case for leaving the EU presented from the left, primarily to facilitate nationalisation and state subsidies.

As we move deeper into 2019 it seems both the prime minister, Theresa May, and the leader of the opposition, Jeremy Corbyn, are running down the clock until ‘Brexit’ day (March 29th)—May so that Parliament fears the choice is between her deal and an over-the-cliff, no-deal Brexit, Corbyn so that a post-Brexit Labour government can implement the party’s manifesto without the constraints he perceives the EU would apply. By seeking not to replace May now, he expects to be able to blame her for any post-Brexit economic problems and thus inoculate his policies from any short-term difficulties.

Even given his policy agenda, however, this strategy is flawed.

Weakening economy

First, any radical agenda is much easier to implement if the overall economy is strong and growing. One has a rising tax base with which to finance reforms and fat that one can cut to make further room for reforms. Wages tend to rise. Moreover, a strengthening economy of itself increases support for a government, making it more likely that future elections will be won, and the reform agenda fully carried through and sustained.

Pretty much every economic forecast shows, however, that Brexit will result in the UK being worse off than otherwise. Independent think tanks, international agencies, the Confederation of British Industry, the Trades Union Congress and the Treasury all indicate growth in the UK will be tepid in the event of an agreed Brexit, and negative (possibly very) if the UK leaves without a deal.

An incoming Labour government after Brexit would therefore have little room to carry out its agenda. Absent tax increases—which would depress activity yet further in such circumstances—there would be fewer resources to spend. Without drastic cuts elsewhere (and everything has been cut since 2008) there would be less money even for favoured sectors. Much as he might hate it, Corbyn might have to run down further the National Health Service, possibly leading to its demise in the form in which we have known it.

Role of the state

Secondly, turning to the specific constraints the EU might put on an incoming Labour government, Corbyn might identify three: nationalisation, state subsidies and fiscal deficit.

In fact all three are manageable within the EU. There is no EU prohibition against nationalised industries: many member states have publicly-run industries, particularly in transport and utilities, Labour’s prime targets. There are constraints that such nationalised industries do not use their particular positions to obtain uncompetitive advantages, but such constraints would likely also be included in any UK plans.

State aid may similarly be a red herring. Within the European commission, this comes under the auspices of DG COMP and on first sight it would seem to be in conflict with Labour’s proposals. DG COMP has however evolved significantly over recent years, particularly since the global financial crisis, when it recognised that curtailing state aid had to be balanced with securing financial stability. DG COMP interpreted its mandate to mean that state aid to banks was acceptable to that end, as long as it did not provide non-competitive advantage in the medium term—any government loans would therefore ultimately need to be repaid.

UK governments were able to work productively with DG COMP to secure approval for huge state-aid programmes for the Royal Bank of Scotland and the other failing banks. It could be a natural next stage for DG COMP to recognise the need to balance state-aid restrictions on the non-financial sectors with safeguarding economic stability and resilience in those sectors, and to work with a future Labour government on a medium-term programme compatible with the government’s objectives. Other EU members would likely give strong support for such a policy evolution. And EU regional funds are already set up to be used to combat the impact of deindustrialisation in the north of England and other deprived areas.

Finally, there is the limit on the fiscal deficit, which commentators have suggested Labour’s policy agenda might breach. But, first, the UK did not sign up to the Growth and Stability Pact, which is the framework under which the commission assesses countries’ budget deficits. Anyway, here too there is scope for flexibility, particularly for the largest member states: France has breached the notional 3 per cent deficit limit without sanction. Admittedly, Italy is now in conflict with the EU over its budget but that is much more to do with its very high debt stock and its non-credible forecasts than its current budget deficit.

Also, constraints are more likely to be relevant for eurozone members, because of their mutual monetary interdependence, and the UK outside the eurozone would not face such pressures. Finally, as noted earlier, a UK economy inside the EU is much more likely to be a growing economy and have a smaller deficit—hence giving greater scope for Labour’s policy agenda without falling foul of any EU fiscal constraints in any event.

Labour market

Corbyn naturally wishes to see rising wages and increased job security. One argument is that UK wages are suppressed by the ready availability of low-wage workers from the rest of the EU. Proponents argue that restricting EU in-migration and hence cutting this supply would improve wages for the home labour force. As the EU regards the free flow of labour as one of the indivisible elements of its single market, pushing up wages by restricting EU immigration justifies leaving the EU.

There is however no basis for this argument. Empirical studies show negligible impact from these workers on the UK labour force in general. Non-UK EU workers are concentrated heavily in three sectors: hospitality, agricultural harvesting and care. In each case the arrival of EU workers is a response to shortages among the UK labour force. Removing this supply would likely lead to closures and breakdowns in deliveries. Farmers are already complaining that fruit and vegetables would go unpicked.

And, possibly most seriously, the viability of the NHS would be further threatened. Conceivably, if wages in the NHS were to be substantially increased, this would draw in more domestic workers to replace the EU workers displaced. But in a post-Brexit economy there would be no resources for such increases—the NHS would likely be cash-starved and worker-starved.

Corbyn seems to recognise that, in another regard, the EU is unambiguously good for workers. Hence he is putting forward the retention of EU worker protections post-Brexit as one of his conditions for possibly supporting the May plan. But any assurances that May gives in this regard can be regarded as safe at most as long as she is prime minister. The vision of the Brexiteers is to turn the UK into a low-cost, deregulated social model. Reversing EU worker protections would be an early target if May is removed. Similarly, the cash for disadvantaged constituencies she has mooted to woo Labour MPs would be bankable only until the moment Brexit was delivered.

Misplaced strategy

In short, the Labour leadership’s apparent strategy of facilitating a May-led Brexit so as to pursue a post-Brexit manifesto agenda is misplaced, and would leave it complicit in any post-Brexit disaster. To secure its main policy objectives—and given that it cannot win a parliamentary vote for a general election  now—it needs to join the other opposition parties in calling for a second referendum on leaving the EU, and to advocate staying in the EU as the best context to carry out its policy agenda.

Once the UK’s position within the EU were secured, Corbyn would have a very strong position across the union. Centre-left parties are looking for a new policy strategy, and putting forth a pan-European leftist agenda would likely be more rewarding than trying to carry out ‘socialism in one country’.