Could Labour nationalise Openreach if the UK Remains in the EU?

Labour is reportedly seeking legal advice on whether its broadband plans are compatible with EU state aid laws.  

The party plans to make Fibre to the Premises (FTTP) broadband to every home and business in the UK by 2030 for free include nationalising Openreach, the access network and infrastructure arm of BT, and creating a new public Internet service provider.

Another key Labour election pledge is a second referendum on Brexit, and while party leader Jeremy Corbyn would take a neutral stance on that vote, the majority of Labour MPs and members would campaign to stay in Europe.

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This could cause a headache for Labour, as the Treaty on the Functioning of the European Union sets out the conditions for state aid, which are designed to stop governments from inhibiting competition by creating monopolies.

State aid rules meant that the Conservative and Liberal Democrat coalition government could not directly award money from the Broadband Delivery for the UK (BDUK) scheme to any one company – although in practice, the bidding wars ended with BT winning the lion’s share of the BDUK contracts. These saw superfast broadband services – mostly delivered via VDSL – rolled out to roughly 90% of UK addresses.

According to a new report in the Telegraph, the Conservative Party has claimed that Labour’s plans would breach the Treaty.

Article 107.1 of the Treaty states: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”

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The Telegraph quotes an unnamed Labour spokesman saying “Our manifesto commitments are possible both inside or outside the EU,” dismissing the Tories claims “groundless nonsense,” but offered no further explanation.

The key words from the Treaty may be ‘distorts or threatens to distort competition’. Labour’s plans would not only involve the nationalisation of Openreach and the creation of a new entity – British Digital Infrastructure – they would also give away the fastest services to customers for free.

In such an environment, it is highly unlikely that rival FTTP networks and other ISPs using Openreach’s network would either want, or in some cases, be able, to run a business.

Indeed, in the aftermath of the policy first being announced last month, spokespeople from several ISPs made their objections apparent to telecoms industry site ISP Review, with Martin Pitt, managing director of Aquiss, offering a particularly scathing assessment:

“As a collective industry, driven by competition, we are already working to deliver full-fibre to all parts of the UK; with many rural communities already enjoying these benefits. Labour’s announced proposals are ill conceived, completely out of tune with reality, slicing and dicing an advanced vibrant industry that will set the delivery of full-fibre back even further. Any sensible Government should be working with an industry, not looking to be on full collision course with it.”

Assuming that Labour wins the election, a second referendum takes place, and the British public vote to cancel Brexit, in its current form, Labour’s broadband plan appears unlikely to pass muster with Brussels.

Since announcing its free broadband policy, Labour has provided more details of the costs involved. Alongside £20.3bn for building the network, with some cash raised by taxes on tech companies, it’s estimated that between £230m-£579 a year would be needed to run the network, along with a further £1.2bn set aside for any extra costs in 2023-24.