Corbyn and McDonnell must fight for Britain’s membership of the single market

The Labour Party is on the verge of making an historic mistake. Somehow we’ve manoeuvred ourselves into a position where we appear to oppose membership of the single market. This is economic masochism.

The official Treasury predictions of economic growth are as follows. Soft Brexit will lead to a long-run fall in GDP of 3.8 per cent under a “Norway scenario” in which we stay inside the single market, compared to the 6.2 per cent under the hard Brexit option in which we have a negotiated bilateral free trade agreement but are outside the single market, and 7.5 per cent in a “stupid Brexit” scenario in which we rely purely on World Trade Organisation (WTO) rules. Independent forecasts are similar. The message is clear: the further away from single market membership we travel the fewer jobs, lower wages and more downwards pressure on benefits and public services we will have.

There is confusion over the distinction between membership of, and access to, the single market. The Chinese, Malaysians, even theoretically the Klingons, can have access to the single market. It is single market membership which brings us the harmonisation of rules which remove barriers to trade and creates the economic growth which underpins our public services.

One of the reasons for our opposition to single market membership is a little noticed policy shift on the EU rules on state aid which has hardly been discussed, and certainly hasn’t been agreed by the party. Jeremy Corbyn has said: “Any deal with the EU must recognise that the old state aid rules are no longer valid.” As state aid rules are an integral part of the single market this effectively rules us out of the least harmful forms of Brexit.

State aid rules are designed to create a level playing field for companies. Opposition to the rules is based upon the idea that they rule out an active industrial strategy and nationalisation. This is mistaken.

First, nationalisation and public ownership are still very much possible under EU rules. A simple look across Europe reveals many state owned rail and postal services. Indeed one of Corbyn’s arguments has been that state owned European companies are operating British privatised services. Re-nationalisation is also very much possible, although the investment has to be on commercial terms. Indeed there is explicit protection in EU law for the principle that individual member state rules on property ownership aren’t prejudiced by EU treaties.

Second, while the rules do make direct financial support for ailing industries more difficult, many creative forms of support are available to proactive governments. As Corbyn himself pointed out during the steel crisis, Germany, Spain and Italy all support their industries within state aid rules through loan guarantees, taking public stakes or offsetting energy costs.

Third, state aid rules are at the heart of the efforts to eliminate European tax havens such as Luxembourg, Holland and Ireland. The EU is using state aid rules to pursue Apple for €13bn in back taxes. Similar investigations are going on into Starbucks in Holland and Amazon in Luxembourg. Corbyn and John McDonnell have a long, honourable record of condemning tax havens: it is state aid rules which are helping to close them.

Fourth, even if one believes that state aid rules are in need of drastic reform, leaving the EU does not mean leaving similar trade governance arrangements. The European Economic Area (EEA), European Free Trade Area (EFTA), some bilateral EU-state agreements and the WTO have similar anti-subsidy provisions. This is because the underlying thinking in all trade rules is similar – why would we open up our domestic market if subsidised competitors compete unfairly with our own businesses? Indeed, this is a more general point – our manufacturers are able to trade fairly across Europe on a level playing field because of these rules, creating good quality jobs at home.

Fifth, ruling out single market membership because of state aid rules takes us firmly into the territory of the proverbial baby and bathwater. Are we really going to, in effect, argue for a hard Brexit, which is certain to make our families significantly poorer and has the knock-on effect of lowering tax revenue which can be used to maintain high quality public services, because it might make us choose a slightly more circuitous route to nationalising our railways? It is a strange argument that we have to harm our exporting manufacturers in order to aid them. This logic was last heard in Vietnam, where US army majors talked of destroying villages in order to save them.

Norway shows it is possible to leave the EU – and the common fisheries policy, agriculture, justice and home affairs policies, and even the customs union – and remain within the single market. Britain joining the European Economic Area (EEA) alongside Norway, at least as a transitional arrangement, would be one of the least harmful forms of Brexit. However, membership of the EEA also implies freedom of movement.

One of the key factors in the EU referendum result was a desire for greater control of migration. Remain lost the argument on freedom of movement, to my personal regret. It remains to be seen how fundamental curtailing freedom of movement is to voters once they see the economic harm leaving the single market will cause. If it is indeed fundamental then the path forwards is very narrow indeed. The EU has not so far signed an agreement which combines limits of freedom of movement and membership of the single market. However, there has been a suggestion from senior European (albeit not EU) policymakers that in the long term a “continental partnership” could be formed – which combines something very close to membership of the single market for goods and services with quotas on EU migration. The UK and other members of the partnership would be consulted on single market rules and would have to contribute to EU budgets – but only full EU members would have a formal decision making power.

To be clear, this arrangement is not yet on offer. But over the long term it makes more economic and electoral sense for Labour to advocate for this type of arrangement. At present, the leadership seem to argue for the reverse: in favour of free movement but against single market membership. This seems curious.

Elsewhere in the party there has been talk of making ending free movement one of Labour’s red lines. As a fundamental objective this also seems curious. In the debate over Labour’s approach to the article 50 trigger, making membership of the single market the red line seems more important to Britain’s future and more capable of creating a majority in Parliament. Within Labour the debate on single market membership needs to be held openly and involve members. Those advocating leaving because of state aid rules need to be open about the risk of long term economic self-harm.

Nick Donovan is campaign director at an anti-corruption NGO. He previously has written for LabourList with Dan Jarvis MP on a one-off wealth tax.