This article is more than 1 year old

This article is more than 1 year old

Britain could triple state aid spending to industry without breaching EU rules, according to a study that compares government subsidies to promote economic growth across Europe.

EU state aid rules “do not prevent an active industrial policy”, the report found, giving the green light to the UK government for an increase in its £7bn of state aid to nearer £21bn.

The report by the left-leaning IPPR thinktank found that the EU’s state aid rules would apply to the UK once it had left the union because officials in Brussels would enforce the measures through a trade deal.

The IPPR director, Tom Kibasi, said: “If the UK government decided to match Denmark, it could invest £250bn over a decade in a more active industrial policy. That would give it huge scope to support key areas of the economy, whether we remain in the EU or leave it.”

The IPPR has not taken a view on Brexit, but its intervention in the debate over state aid will be keenly examined by Labour party supporters who voted to leave the EU.

Like the Labour leader, Jeremy Corbyn, many of them believed that rules imposed by Brussels would constrain a leftwing government from nationalising parts of the economy and from supporting cooperatives or providing funds through state-backed local banks.

State aid can range from a government tax relief scheme for investors to a local authority giving a subsidy to a property developer. It is normally prohibited to prevent trade and competition between firms from being distorted, discouraging investment and increasing costs to consumers.

However, the EU has allowed hundreds of public investment programmes to go ahead that support businesses under a regime that the IPPR said was more flexible than it might appear.

The report found that the EU’s rules “are designed not to prevent its use, but to ensure it is used ‘for sensible purposes’ including aid to struggling regions, support for research and development, environmental aid and help to small and medium-sized enterprises that face challenges to expand”.

The report said: “It restricts state aid where it wastes public money and exacerbates pan-European inequalities. Moreover, EU rules do not prevent nationalisation and explicitly allow for public ownership in the rail industry and other areas of the economy.”

In 2016, France spent £12.7bn on state aid while Germany set aside £36bn, compared with the UK’s £7bn.

Subsidies to the rail sector are treated separately and show the UK could substantially increase the cash it spends each year. Britain only invests £825m a year in its rail system, according to EU, compared with Germany’s £10.3bn and France’s £10.7bn.

Analysis of the withdrawal agreement between No 10 and Brussels indicated that the UK would be expected to follow the same state aid rules under any future relationship with the EU. The IPPR said this meant that leaving the EU would not provide any additional freedom.

Marley Morris, an IPPR senior research fellow and lead author of the report, said: “Successive UK governments have said their hands are tied in developing more proactive industrial policy by European Union rules. But it appears that this is not, in fact, true.”