It is a paradox not lost on many Labour MPs that while their leader is to the left even of Michael Foot, he has collaborated with the right more than any Labour leader since Ramsay MacDonald. Jeremy Corbyn’s insistence that Brexit means leaving the single market and customs union – unpicking Keir Starmer’s carefully woven tapestry of ambiguity – now puts him in the same place as Theresa May and Liam Fox. That place is to the hard right of British politics.

The similarities with MacDonald, accused by a large swath of his party of propping up a Conservative-dominated government committed to austerity, are striking. The Labour leadership is supporting the Conservatives on the biggest issue of the day, despite the economic harm that leaving the world’s largest single market is likely to cause by reducing tax receipts and increasing austerity.

Will the parliamentary Labour party put up with it? Many Labour MPs seek to oppose the first government since the second world war to no longer regard economic competence and performance as central to its programme. The Conservative proposition at the general election was extraordinary for its comically innumerate manifesto, and its treatment of business as an embarrassing relative best kept out of sight. The party has been consumed by English nationalism and the politics of identity: the economic consequences of policy are secondary to “taking back control”.

The far left has long viewed the EU as a capitalist project that good socialists should steer well clear of

I am genuinely puzzled by the position of Labour’s leadership. It could be rationalised as reflecting the politics of leave-dominated constituencies. But the leadership has taken principled positions in other areas. Moreover, it is seriously at odds with voters in London and Scotland, and the trade union movement.

I suspect that at the heart of it is a lingering attachment to the negative views about Europe incubated in the 1970s. The far left has long viewed the EU as deeply inimical to its values: a capitalist project that good socialists should steer well clear of. Somehow, that view of the world has survived like a mammoth preserved in the Siberian permafrost. The Guardian’s economics editor, Larry Elliott, breathes new life into it; and, as it appears to be the stance of Corbyn, we must engage with it, however removed it might be from today’s reality.

Elliot and others argue that single market freedoms prevent sensible interventionism. They don’t. State aid rules are sensibly designed to prevent ruinous bidding by national governments for internationally mobile capital. But they do not inhibit intelligent state intervention. As business secretary I had to seek state aid approval for several projects, including the publicly owned green investment bank. There was delay, but all were agreed.

The rules around public procurement have been over-interpreted by zealous British officialdom as outlawing support for community and national businesses. But this misguided literalism is not the European way: Germany and France interpret the rules more flexibly. The European commission’s aggressive competition policy stems from a healthy distrust of monopoly.

Sir Vince Cable and Chuka Umunna MP speak at the press launch of EU Small Business campaign

Surely the Labour leadership has noticed that the European commission is the only organisation willing and able to challenge the new global internet platforms that treat national governments with contempt. European competition rules are, however, too permissive in relation to takeovers – as is our own legislation – which leave our science-based companies wide open to predatory acquisition. But other European countries are open to reform in this area.

More generally, outside the time warp of the British far-left, European progressive parties have recognised that the liberalising forces of the single market are balanced by strong environmentalism, consumer protection and labour standards: precisely that which the Conservative right is determined to get rid of once we “take back control”.

There is however one area where the left critique of the European project has real force, though it has limited impact on Britain. The asymmetrical demand management policies that have been pursued within the eurozone, at the behest of rigid advocates of German fiscal orthodoxy, have been very damaging to countries such as Greece and Italy. But they aren’t just an offence against the ideas of the left; they are bad economics. Leaders like Macron who understand that the need for a European Germany rather than a German Europe could (especially with help from the UK) change direction. Those who speak most eloquently against these policies, like Yanis Varoufakis, have argued for Britain to remain in the EU.

Tribalism gets in the way of sensible collaboration in British politics. But I want to reach out to Labour MPs privately angry that they are being ordered into the division lobbies to vote for Theresa May’s extreme Brexit. It is time we were more grown-up in politics and worked together where there is common ground. There are also sensible Conservative MPs who understand that Britain is stronger in the single market and customs union.

Leaving Europe has the potential to smash open the British party system. This is a once-in-a-lifetime opportunity for pro-European progressives to fight the forces of nationalism and reaction – including on the reactionary left.