4. A BETTER ENVIRONMENT FOR BUSINESS IN
THE EU
(23989)
13982/02
COM(02) 610
+ADD 1-3
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Commission Communication: A Better Environment for Enterprises and three staff working papers: Highlights of the Results of the 'Best' Procedure Projects 2001-2002, Benchmarking Enterprise Policy: Results from the 2002 Scoreboard and Quantitative Targets in Enterprise Policy — Steps Towards the Lisbon Objectives.
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| Legal base: | —
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| Document originated: | 7 November 2002
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| Deposited in Parliament: | 20 November 2002
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| Department: | Trade and Industry
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| Basis of consideration: | EM of 4 December 2002
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| Previous Committee Report: | None
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| Discussed in Council: | 26 November 2002 Competitiveness Council
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| Committee's assessment: | Politically important
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| Committee's decision: | For debate in European Standing Committee C
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4.1 The Communication reviews progress made in Member
States in improving the business environment in the EU. The Lisbon
European Council in March 2000 recognised that an environment
which provides incentives to establish enterprises, to innovate
and to take risks, contributes to the growth of income and of
job opportunities. On the other hand, burdensome regulations,
inefficient markets and administrative obstacles hinder entrepreneurial
dynamism. The performance of the EU Member States was compared
unfavourably with that of the United States.
4.2 The Commission reports that, using the open method
of co-ordination[19]
to benchmark policy and to monitor progress, it and the Member
States have identified and disseminated best practice, in particular
on the effectiveness of the institutions on which markets depend.
4.3 The Communication draws on three Commission staff
working papers:
1. Benchmarking Enterprise Policy: Results from the 2002 Scoreboard
4.4 This annual exercise provides indicators of progress
made towards the Lisbon objectives.
— promoting entrepreneurship and improving the regulatory
and administrative environment
4.5 Further progress is needed to reduce barriers to
entrepreneurship. Self-employment rates are low and the time taken
and cost of setting up a business is still very high in many Member
States. Attitudes to entrepreneurship and risk-taking are much
less supportive than in the US.
4.6 Research has shown that administrative costs can
be significant and that they fall disproportionately on small
and medium-sized enterprises (SMEs). Making regulation less burdensome
has become an explicit policy priority in the vast majority of
Member States and the report finds that all the Member States
have made progress in recent years in simplifying the administrative
and regulatory framework to make it more supportive of risk-taking
and business development. Belgium, Denmark and the Netherlands
are committed to reducing the burden of regulation by 25% by 2010.
4.7 Ireland, Sweden and the UK have said that they will
do impact assessments on all new regulations relevant to the business
sector by 2006. Significant progress has been made in e-government,
though much remains to be done.
— assessing access to finance
4.8 In the US, during the 1990s, access to finance, in
particular to venture capital, played an important role in nurturing
new high-growth firms. In the EU, the Commission notes that financial
markets are still relatively fragmented and that venture capital
markets are less developed. The majority of firms in traditional
sectors depend on access to banking and credit institutions. Loan
guarantee schemes and mutual guarantee schemes are common tools
for provision of loans to SMEs, where private banks seem to be
reluctant.
4.9 The indicator on the importance of stock markets
is market capitalisation as a percentage of GDP. It is complemented
by an indicator of volume. In 1999-2001 more than 3000 new companies
were listed in the EU, whereas less than half as many were listed
in the US. However, the market capitalisation of the European
companies is significantly lower than in the US. Stock markets
play a much more significant role in some countries, such as Finland,
Luxembourg, the Netherlands, Sweden, the UK and the US. Framework
conditions for stock options are poorly defined in a majority
of Member States. The resulting legal uncertainty is a deterrence,
as are tax rates, which average more than 30% in the EU, compared
to 20% in the US.
4.10 Institutional capital, such as pension funds, represent
a large and growing depository of funds in the EU. The Commission
suggests that a combination of prudential regulation and related
tax incentives may be discriminating against investment in businesses,
particularly small, unlisted companies.
— human resources
4.11 A shortage of medium and highly-skilled employees
has acted as a significant obstacle to growth. As well as inadequate
labour mobility and rewards for skills, there is a mismatch between
the skills supplied and demand, particularly for technical skills.
In contrast to the US, firms at the frontiers of technology have
reported shortages of scientists in recent years. The shortages
originate in the characteristics of the educational systems of
the Member States and reform is necessary. The percentage of the
population participating in education and training remains very
low and urgent action is needed. Some Member States score well
in literacy, mathematics and scientific skills, but other nations
such as Japan, Canada and Korea score better. The shortage of
ICT[20] skills is likely
to increase and here too there is a need for action.
— innovation and the diffusion of knowledge
4.12 The US remains ahead on most measures of innovative
capacity. Along with a weak record in this respect, the EU is
poor at spreading and exploiting knowledge. Low investment in
ICT and sharing knowledge in this area explained, in part, the
slowdown in the EU's growth in productivity in recent years, as
was shown in the 2001 European Competitiveness Report.[21]
However, by 2001, 90% of businesses had access to the internet
and household access had risen in all Member States except Greece.
Investment in ICT and progress on investment had been uneven,
with significant differences in performance, although, generally,
rapid progress had been made in broadband penetration, with twice
as many households (14%) reporting access in 2001 compared to
the previous year. As these are areas of potential competitive
advantage, large parts of Europe risk being left behind.
— sustainable development
4.13 This is a new section and the only indicators used
so far apply to sustainable development in manufacturing. The
key concept is that of eco-efficiency, that is the ratio of economic
output to environmental pressure, measured either by emission
of pollutant or resources used. From 1990 to 2000, industrial
eco-efficiency improved by 13%, broadly in line with the growth
in manufacturing output. A majority of Member States recorded
improvements, with the largest occurring in Luxembourg, Ireland
and the Netherlands. There was a minor deterioration in the case
of Denmark, Greece and Portugal.
4.14 Significant environmental gains between 1990 and
2000 were recorded across four indicators:
- a major improvement of over 25% in eco-efficiency of energy
consumption was recorded in the case of Ireland, Luxembourg, Sweden,
Germany, Finland and France, but there had been a deterioration
in the case of Greece, Portugal, Spain and the UK;
- industrial greenhouse gas emissions improved by almost 30%,
leading to a fall of 10%, despite the increase in industrial output.
Ireland scored particularly well.
- industrial emissions of acidifying gasses, responsible for
acid rain, declined by some 48% over the ten years, despite a
rise of 11% in manufacturing output; and
- the eco-efficiency of ozone-precursors improved by over 40%,
with overall emissions falling by 27%.
2. Quantitative Targets in Enterprise Policy — Steps
towards the Lisbon Objectives
4.15 The Stockholm European Council in 2001 called in
its Conclusions for the Commission and Member States to consider
the use of quantitative targets in enterprise policy, on a voluntary
basis, using the open method of co-ordination. The aim is, through
dialogue and exchanges of opinion, to arrive at a common framework.
The Commission considers that the Contact Group set up for the
purpose has worked well and made notable progress. It is up to
the Member States to propose areas of policy where progress is
needed, in their judgements as well as to suggest indicators.
Twelve Member States have declared targets, many adopting the
approach taken by the UK of putting forward targets published
domestically. The UK targets are based on the public service agreements
which underlie the budget allocations of UK government bodies.
Luxembourg is the only Member State that has not participated
in the Contact Group but it supports the project. In Italy, work
on quantitative targets is in progress.
4.16 The Commission proposes that the Competitiveness
Council should encourage Member States to consider putting forward
further targets, if appropriate, acting to ensure that they are
met and reporting on progress. There is also a suggestion that
the Commission, with Member States, should undertake peer review,
perhaps discussing and evaluating the policies put in place by
the Member States to meet their targets.
3. Highlights of the Results of the BEST Procedure Projects
2001-2002
4.17 BEST was launched in 2000 as a means of supporting
the identification and exchange of best practice, in key areas
of importance for business, by the Member States. Approved BEST
projects are included in the multiannual programme for enterprises
and entrepreneurship (MAP).[22]
4.18 The paper describes the results of ten projects
launched in 2001 and 2002: transfer of businesses; education and
training for entrepreneurship; business angels; ICT skills monitoring;
promoting female entrepreneurship; business support; benchmarking
administration of start-ups, management of incubators, and national
and regional policies in support of SME e-business; and business
impact assessment.
The Government's view
4.19 The Parliamentary Under-Secretary of State for Competition,
Consumers and Markets (Miss Melanie Johnson) comments that the
Commission may draw on these reports when formulating policy proposals.
She says that the Government encourages such evidence-based policy
making.
Trade and Industry Committee report
4.20 The Commons Trade and Industry Committee concluded
its report of June 2002 on The competitiveness and productivity
of UK manufacturing industry[23]
by commenting that it had been struck by the similarity of the
evidence given by all witnesses — Government, management
and unions — about the causes of the comparatively poor
productive gains of UK manufacturing. Compared to the United States,
it found that the problems of UK manufacturing were both longer
term and more intractable:
"Manufacturing has suffered from decades of under-investment
in plant, labour force skills and R&D. UK management has been
slow to adopt good practices from abroad. Government can have
only a limited role in solving these problems: managers, the workforce,
capital markets, trade bodies and educational organisations all
have at least as significant a role. But Government can show the
importance it accords to manufacturing by giving a vigorous lead.
Because of the nature of the problems faced by industry, the DTI
must have the close co-operation of other Departments such as
the DfES on training, the DTLR on planning and, not least, HM
Treasury on incentives to promote investment in plant and R&D,
if the UK is really to become a world leader in this sector. Recent
initiatives by Government are a start. It is essential that the
impetus be maintained; we will continue to monitor this area to
assess whether it is".
4.21 As regards skill shortages, the Committee learnt
that the industry considered that there was a shortfall of perhaps
10,000 engineering-based modern apprenticeships. It urged the
Government to take all necessary steps to ensure that the supply
of these apprenticeships met demand in future.
Conclusion
4.22 Nearly three years after the Lisbon European
Council of March 2000, the competitiveness of the EU continues
to compare unfavourably with that of the United States. That is
not so surprising, but the gap remains significant and it is not
clear that EU Governments are taking all the measures necessary
to close it. Progress has been made in some areas but the Communication
demonstrates that the overall objective of Lisbon that the EU
should become the world's most competitive, knowledge-based economy
has still a long way to go.
4.23 The competitiveness of the UK compared to that
of other Member States is of considerable political importance,
as is the competitiveness of the EU as a whole to the British
economy. For this reason, we recommend that the Communication
and staff working papers considered here should be debated in
European Standing Committee C.
4.24 We suggest that the debate should not focus narrowly
on the domestic situation and the policies and actions of the
UK Government, but that the Committee should take the opportunity
to question the Minister on the EU dimension, the lessons that
might be learnt where other Member States have performed well
and the impact on the UK where they have performed poorly. The
issues which might be raised include:
- what influence has the introduction of this scoreboard
had on UK policy and that of the other Member States? Has an active
policy of benchmarking the performances of the Member States against
crucial indicators encouraged Member State Governments to examine
their policies and alerted them to valuable examples of best practice
within the EU, of which otherwise they might not have been so
aware?
- are there any particular areas where the competitiveness
of one or more other Member States has had a significant impact,
for good or ill, and what action does the Government intend to
take either to learn lessons or persuade the EU or the individual
Government concerned to take steps to remedy the situation?
- some of the weaknesses highlighted in the papers are hardly
new. Administrative burdens on SMEs are one such weakness. Although
the Commission says that all the Member States have made some
progress in simplifying the administrative and regulatory framework,
it also notes that the costs that result can be significant, particularly
for SMEs. Why is this still the case and what new measures can
be taken? Germany's SMEs generate half of the country's economic
output, according to a report in the Financial Times of 9 January
2003. The German Government plans to provide tax breaks for start-ups
and small-scale enterprises to stimulate this sector. Are these
the sort of policies which other Member States should adopt?
- the skills gap is another example of a persistent weakness,
with the Commission stressing the mismatch between supply and
demand. It picks out, in particular, the shortage of scientists
in the EU, in contrast to the United States. The UK Government
has been lobbied for years on the poor pay and job opportunities
for young research scientists in the UK, many of whom move to
the United States, or to other jobs. Why has this problem not
been taken seriously enough and effective action taken?
- the Commission places blame for the skills shortages on
the educational systems of the Member States and says that reform
is necessary. The scoreboard indicates that the UK scores fairly
highly on numbers of graduates, so is there a problem of retention
after graduation, as in the case of the young scientists? How
serious is the problem of the courses which students choose to
take? What action should EU Governments take to stimulate different
attitudes by employers and choices by students?
- the pay and status of engineering graduates has also been
a problem in the past, particularly in the UK. The market, with
the growing shortage of good-quality graduates, may be providing
a solution in cases where firms recognise that quality is worth
paying for. Some industries do, such as the oil industry, but
do others, in the UK in particular, and in the EU as a whole?
- the Trade and Industry Committee drew attention to a potential
shortfall of 10,000 engineering-based modern apprenticeships in
the UK. Instead of placing so much emphasis on university graduates,
should more be done to foster apprenticeships? Did the UK and
France make an error in converting so many polytechnics into universities,
rather than following the German route of rewarding better those
who have gained qualifications through apprenticeships? The Commission
recommends that EU Governments should take urgent action to lift
the percentage of the population participating in education and
training. What form should this action take?
- does the Minister agree with the Commission's analysis
as a whole?
19 A
procedure conceived as a voluntary means of spreading best practice
and achieving greater convergence in meeting the main objectives
of the EU where competence lies largely with the Member States.
It is described in some detail in paragraphs 37 and 38 of the
March 2000 Lisbon European Council Presidency Conclusions. Back
20 Information
and Communication Technologies. Back
21 (22891)
13489/01: see HC 152-xi (2001-02), paragraph 14 (9 January 2002). Back
22 Council
Decision (2000/819/EC) of 20 December 2000 on a multiannual programme
for enterprise and entrepreneurship, and in particular for small
and medium-sized enterprises (SMEs) (2001-2005) OJ L 333/84, 29.12.2000. Back
23 Third
Report from the Trade and Industry Committee, HC 597 (2001-02). Back
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