Downing Street now thinks that the chances of a Brexit deal are down to 30 or 40 per cent, I say in The Times today. The sticking point is, rather surprisingly, state aid.
Since Margaret Thatcher’s election in 1979, the UK has been sniffy about the idea of government ‘picking winners’. It doesn’t use much state aid (less than half the EU average, according to the Commission’s figures), but the Johnson government doesn’t want to commit itself to something similar to the EU's regime – it wants to use the power of the state to develop what it sees as the industries of the future. One figure with intimate knowledge of the negotiations and how they link to domestic policy tells me 'state aid is critical if you are going to try and shape markets in technology'. The worry is that unless the UK can do that, it will end up a technological vassal – dependent on either the United States or China, both of whom are unafraid to use the state to shape these markets.
But the EU views state aid as a key part of the level playing field. If Britain is going to use it to try to spur the creation of domestic technology sectors that can compete on a global level, that has implications for them. This is what makes the impasse unlike other moments when the Brexit talks seemed doomed, only for everything to be resolved at the very last minute. The problem this time isn’t that the two sides are talking past each other, but that they understand each other too well.