A pledge to use the state’s £290bn procurement budget to buy from British companies is all about a future outside the EU
Last modified on Fri 9 Jul 2021 06.52 EDT
Whatever the patriotic gloss and 1960s-sounding slogan, the shadow chancellor Rachel Reeves’s Buy British policy announcement is a genuinely smart response to a newly emerging economic consensus. Pledging that a Labour government would use the state’s £290bn procurement budget to buy from British companies, provide funds for bringing supply chains back to the UK and seek improved agreements with the European Union on key trade pressure points such as professional qualifications, Reeves’s package is the surest indicator yet that both parties have accepted the previous assumptions of decades of free-market, “neoliberal” globalisation are shifting. Government intervention is back, in a big way, and the political arguments of the future will be about who can do it best, not whether it should be done at all.
Strikingly, this is the first major economic announcement under Keir Starmer’s leadership that directly confronts Britain’s future outside the EU. By insisting that government spending could be deliberately targeted to create secure, high-paying jobs and support domestic supply chains, the policy would run up against the EU’s level playing field rules if Britain were still a member. When Jeremy Corbyn’s Labour launched a similar initiative in summer 2018, promising to Build it in Britain, the howling from certain quarters about “red Ukip” or worse pushed the party into a retreat. Now the country is decisively outside the EU, Starmer’s Labour faces no such constraint.
Union jack wrapping aside, the policy bears a close resemblance to Joe Biden’s Made in America programme, which seeks to use the immense spending power of the federal government to deliver on the president’s aims. Alongside the “pro-worker” trade deals promised by new US trade representative Katherine Tai, the plan to provide $300bn of subsidies and investment for hi-tech manufacturing is a key component of the immense shift in economic policy that the Biden administration is overseeing.
For the best part of a decade now, the major economies of the world have been gradually turning against neoliberalism – the belief that governments should not seek to shape economic outcomes. China’s extraordinary growth over the past four decades was delivered through a combination of opening up to capital and state ownership and investment. Its technological successes in recent years have been heavily dependent on state backing, with a tech powerhouse like Huawei receiving an estimated $75bn in direct and indirect subsidies since its foundation.
The combination of private capital and state direction has proved irresistible elsewhere, particularly in a world where (as we have seen since the 2008 financial crash) productivity growth in the private sector has been far below historic levels. The threat of direct competition from China’s leading tech companies was an important factor in pushing Donald Trump’s administration into an increasingly aggressive trade war. Today, Biden has extended that principle to the domestic economy, viewing the creation of high-quality tech and manufacturing jobs as directly linked to preserving the US’s global power. “Made in America is as much about foreign policy as it is about domestic jobs.
And the pandemic has simply accelerated the trend. Even before Covid-19, the EU was turning away from its historic commitment to the level playing field inside the block, with France and Germany proposing a union-wide industrial strategy, backed up with hefty state investment, as a counter to China. The €800bn (£687bn) Covid recovery plan has seen richer countries such as Germany take on the loans of poorer countries in southern Europe, and its state aid rules have been relaxed.
In the UK, the actual limitations of those EU rules were often a little oversold. The biggest barrier to more effective domestic economic intervention was always the Treasury, a department whose longstanding belief in underfunded government and spending restraint (enshrined since the 1920s as the “Treasury view”) always lead it to vigorously oppose industry-focused government intervention. Britain was consistently among the lowest spenders of permissible state aid in the EU when it was a member. In 2018 France spent double the UK’s figure and Germany six times as much, and their governments were prepared to challenge European Commission decisions on this spending.
Nonetheless, the Brexit trade deal signed by the government with the EU takes a distant trading relationship with the bloc in return for strikingly wide freedoms on state aid. Only the World Trade Organization’s weak controls still apply to government subsidies inside Great Britain. And in line with Boris Johnson’s claims to be a “Brexity Hezza”, aping the interventionist leanings of former Tory industry minister Michael Heseltine, this government has been prepared to ignore free-market principles and get stuck in to industry decisions.
Subsidies have secured battery production at Nissan in Sunderland, and a Stellantis electric vehicle factory in Ellesmere Port. The Tory government of 2016 was happy to see chip designer ARM – one of Britain’s very few genuinely world-leading tech companies – sold to Tokyo-based, then Riyadh-financed SoftBank. The Tory government of 2021 has blocked its sale to US chipmaker Nvidia on national security grounds. The new subsidy control bill, making its way through parliament, replaces the earlier EU state aid rules with a new, far looser regime that puts the final decisions over subsidies in the hands of ministers. Rising Tory stars like the Tees Valley mayor, Ben Houchen, talk up a government-backed “green industrial revolution”.
But, as we’ve seen in the past 18 months, in the hands of the Conservative Party this newfound freedom for government intervention has too often meant handouts for the politically connected, rather than a genuine plan to rebuild the economy. Its ideological free-market wing remains alive and well and could reassert its influence. Labour’s Buy British call for proper scrutiny and clear rules that would see government money going only to companies that create good jobs and meet clear environmental standards, opens up a new dividing line between the two. Labour’s proposals risk being dismissed as mere nostalgic throwback, but in reality they point to where future economic and political arguments are going.
James Meadway is an associate fellow of the Institute for Public Policy Research
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