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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: Mr. Christopher Chope
Brown, Mr. Russell (Dumfries and Galloway) (Lab)
Burden, Richard (Birmingham, Northfield) (Lab)
Burt, Lorely (Solihull) (LD)
Carswell, Mr. Douglas (Harwich) (Con)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Fallon, Mr. Michael (Sevenoaks) (Con)
Heppell, Mr. John (Nottingham, East) (Lab)
Jones, Lynne (Birmingham, Selly Oak) (Lab)
Leigh, Mr. Edward (Gainsborough) (Con)
Lucas, Ian (Parliamentary Under-Secretary of State for Business, Innovation and Skills)
Penrose, John (Weston-super-Mare) (Con)
Prentice, Mr. Gordon (Pendle) (Lab)
Purchase, Mr. Ken (Wolverhampton, North-East) (Lab/Co-op)
Slaughter, Mr. Andy (Ealing, Acton and Shepherd's Bush) (Lab)
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Eliot Wilson, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 3 November 2009

[Mr. Christopher Chope in the Chair]

Draft Provision of Services Regulations 2009
10.30 am
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): I beg to move,
That the Committee has considered the draft Provision of Services Regulations 2009.
It is indeed an honour to appear before you, Mr. Chope, I think for the first time in a speaking role. I have long been beguiled by your knowledge of parliamentary procedure, and I am sure that you will keep us in order today.
The regulations will implement the European Union services directive under United Kingdom law. That will be a great step forward for the internal market. Service businesses still face unnecessary barriers when trading in the EU, even though the freedom to provide services and freedom of establishment are set out in the treaty that established the European Community. Some countries have imposed rules that discriminate against businesses from abroad. Businesses have also had to apply for different licences for each country or region in which they wish to operate.
Those obstacles hit small and medium-sized enterprises particularly. Firms without the ability to pay local experts have been unable to market their services abroad, or have found it uneconomic to do so. Currently, trade in services accounts for only 24 per cent. of trade in the internal market, although services account for 70 per cent. of EU gross domestic product.
The directive covers around two thirds of the services sector, which includes a wide range of industries, from professional and business services such as accountancy and the legal professions to construction, environmental, tourism and beauty services. The directive excludes some service industries, such as financial services, health care, gambling and transport. Part 1 of the regulations gives more details on their scope. The reason for the exclusions is that EU legislation already exists for some of the excluded areas, and liberalisation was seen as undesirable for others.
Businesses will gain most from the regulations, but the regulations will have a major impact on those with a supervisory or regulatory role in relation to services—what are termed “competent authorities”. The directive, which the regulations will put into UK law, has been incorporated into the European economic area agreement; the regulations therefore apply in the EEA states of Iceland, Liechtenstein and Norway, as well as in the 27 EU member states.
Secondly, parts 3, 4, and 5 of the regulations set out the legal requirements on competent authorities to deal with the regulation and supervision of service providers and recipients. Those provisions reflect the requirement in the directive that authorities across the EU remove unjustified, disproportionate or discriminatory legislative and administrative barriers to providing services. They could include requiring a prospective service provider to register with an authority or to establish premises in a particular country, in the absence of an adequate policy rationale. Part 6 of the regulations will place several other requirements on competent authorities that will benefit both service providers and recipients. For example, authorities must recognise the equivalent documentation and professional liability insurance of service providers and recipients in other member states.
Thirdly, the directive requires each member state to set up a point of single contact, which in the regulations is called the “electronic assistance facility”. That is provided for in part 8 of the regulations. The electronic assistance facility will be a web portal, where businesses can find the information that they need about operating in the UK and apply online for any necessary licences or authorisations within the scope of the directive. Other states are establishing similar facilities.
The electronic assistance facility will greatly simplify the situation. Currently, businesses have to spend time and money finding information in different places and must often visit the relevant competent authority in the country where they wish to operate. In future, they will be able to apply and receive authorisation online. It is only right that I should give credit to local councils and other competent authorities for their hard work in screening their processes and laws and in preparing for the point of single contact. I thank them for their commitment.
The fourth element is enhanced co-operation between regulators across the EU, which is provided for in part 9 of the regulations. Competent authorities will be able to communicate with one another through a secure web-based system, called the internal market information system, which my Department is now establishing. Part 9 of the regulations will require authorities to provide information, through the system to their counterparts in other countries, on whether a service provider is duly authorised and on other relevant matters, taking the burden off the service provider to provide documentation repeatedly to different authorities. The system is also intended to ensure proper regulatory supervision of service providers and the services that they provide across EU borders.
Effective implementation of the services directive across the EU is estimated to be worth about £4 billion to £6 billion a year to the UK economy and about €30 billion a year to the EU economy, but the benefits will accrue only if businesses take advantage of the opportunities available, so it is important that we communicate the benefits and opportunities to them. My Department has been working hard to ensure that that happens. Alongside comprehensive business guidance on the regulations, we have been actively e-mailing information to businesses, especially small and medium-sized enterprises, and working closely with major business organisations. My officials are also talking to businesses at events around the UK.
Member states must implement the services directive by 28 December this year. The regulations will also come into force on that date and will apply to the whole of the UK. The devolved Administrations are also amending their own legislation where necessary to comply with the directive.
I hope that hon. Members will agree that this is great news for UK businesses, whether they want to export their services to Europe, purchase services from providers in other member states or take advantage of streamlined processes here in the UK. Opportunities will also increase for foreign businesses to invest in the UK, all of which is great news for the UK economy.
10.37 am
John Penrose (Weston-super-Mare) (Con): It is a pleasure, as always, to see you in the Chair, Mr. Chope. The transposition of the services directive into UK law is a thoroughly good thing that Members from all parties will probably greet with a single question: “This is wonderful, but why didn’t it happen a good deal earlier?” We have been waiting for further moves to pursue, enlarge and deepen the single market for a great many years. It is excellent news that we are dealing with that today, and I hope that everyone welcomes it on that basis.
As the Minister said, the regulations could produce large benefits for the UK economy and UK consumers, just as there are benefits for economies and consumers across the whole EU. The UK economy could benefit rather more than some others, simply because, as page 17 of the Government’s explanatory memorandum points out, services account for a larger proportion of both our employment and our output than the EU average. However, because services in many areas are less tradeable and internationally marketable than other kinds of goods, it is also true that there may be inherently less opportunity in the kinds of market being liberalised. None the less, the regulations are certainly welcome.
Having established those basic points of principle and the fact that there will, I hope, be a strong degree of agreement on them among hon. Members of all parties, I have a couple of detailed and technical questions that I hope the Minister will be able to answer in his response. The first concerns gold plating. I am afraid that, despite all the excellent principles espoused in the services directive, we seem to be going a bit further than the directive requires. We are putting more things into law than are required by Brussels. This country has a long and not terribly good record of being over-zealous in gold-plating when transposing EU directives into UK law, so we should at least make sure that the Government can explain why they think it necessary to go a little further. The Government have been fairly straightforward and up front about what is involved. There is a detailed transposition note on page 107 of the explanatory memorandum, which I am sure that everyone has read in detail.
I want to pick up on two points. Part 2 of the regulations transposes article 22, “Information on providers and their services”, and article 27, “Settlement of disputes”. The services directive places the provisions in those articles outside the scope of the directive for service providers, but part 2 of the regulations includes them anyway. I presume that, in principle, we are talking about service companies from places such as the United States of America operating in the UK. Why did the Government feel that it was necessary or desirable to include such things when not required to do so by the directive?
The Government’s argument is partly based on the fact that such providers represent only 5.6 per cent. of the value added of UK providers in communication services. However, nowhere in the explanatory memorandum or the other various notes provided could I find any quantification of the costs and benefits to UK consumers or to the UK economy of the extension. Presumably, the Government believe that the extension is sensible and valuable and that consumers and UK firms will benefit from it, but nowhere in the quantification in the impact assessment could I see a break-out of the regulations’ additional benefit, whether in compliance costs being reduced or policy costs being avoided.
I am sure that the Government do not want the provisions simply because of some bureaucratic desire for neatness—requiring something to be neat and tidy is one of the worst reasons for legislating. I hope that the Minister can point to a bit of the explanatory memorandum that I have missed or perhaps pledge to put some additional detail on the record or in the Library, so that we can see the quantification. I presume that the Government will have done one.
Moving on, the point of single contact is an important measure, which should allow UK services companies to work out easily, quickly and simply, with far less bureaucracy and with greater accessibility, how to operate in any other EU country—again, something to be hugely welcomed. However, given that the point of single contact in other member states will be incredibly important, as I have just described, what are the Government doing to ensure the interoperability of those points of single contact for UK businesses? In particular, will any measure ensure that there is language translation for those points of single contact in other countries?
Someone in one of the smaller EU countries, with a language that is not widely spoken in other member states, will have a huge advantage in being able to read how to get into the UK market on a website written in English. However, it will be substantially harder for a UK business that does not speak the local language but wants to break into Portugal or one of the Baltic states, for example, to be able to access that market if there is not some ready language translation. Do the Government have any views on what needs to be done there and on what is going to happen?
Equally, with electronic interoperability, if we are meant to have an electronic single-stop shop for businesses, are we taking any steps to harmonise national approaches to e-signatures and e-certificates, for example—online authentication and so on? Can the Minister let us know what measures are being taken or should be taken to ensure that that happens?
I understand that several other member states, including Spain, Portugal and France, have launched pilot projects to test the completion of sample procedures in their countries on the point of single contact. For example, they have chosen sample professions to test it on. The UK has decided not to carry out a pilot or prototype. What tests have the Government done to ensure that our point of single contact will be sufficiently accessible?
I shall move on to the internal market information system. In the IMI system, the services directive imposes on member states specific obligations of administrative co-operation between their authorities. As the directive foresees that competent authorities should, in principle, co-operate directly, administrative co-operation will require the involvement of huge numbers of competent authorities, if only because the large number of member states means that the geometry becomes multi-dimensional and complicated. Therefore, to make that technically possible, the European Commission has set up the IMI system, to allow fast and structured electronic communication. I understand that the Commission piloted the IMI system at the beginning of 2009, focusing on a sample of service sectors and authorities. For the system to work effectively, the authorities must be familiar with the structure and processes. The Commission has produced a list of the number of times competent authorities have accessed the tool to use it, and I am afraid that the UK ranks startlingly low. Why have the Government seemingly been reluctant to access the tool and work with it, or been disinterested in doing so? To what extent did the Government encourage authorities to participate in that way?
A potentially powerful mechanism for ensuring compliance with the services directive is built into the regulations—mutual evaluation, whereby each EU country will be allowed to check on fellow members and complain if it feels that they are not doing enough to open up their services markets. That could be a tremendously valuable mechanism for cracking open countries’ markets when the local authorities are dragging their feet or are reluctant to allow access for UK services companies. What plans do the Government have to implement that kind of auditing measure? How many countries do they plan to audit and how fast, and how vigorously do they plan to pursue the necessary complaints procedures when—sadly, I presume that it is when, rather than if—they discover that some countries are moving more slowly than the Government would like? Perhaps the Minister will lay out some examples, or give us an insight into the Government’s plans for that. Given that mutual evaluation will play an important role in breaking down those barriers, to what extent have the Government already engaged with other member states on that?
A great amount of training and awareness will be needed for the various economic actors involved. The directive is one of the few pieces of EU legislation that will need to actively engage local and regional, as well as national, authorities. Given that it will directly impact on local and regional administration, what are the Government doing to ensure that proper and adequate information and training is available to authorities, to ensure that they are not caught on the hop and are taking all the necessary steps to make UK companies ready and able to export successfully to other EU member states?
10.48 am
Lorely Burt (Solihull) (LD): Welcome to the Chair, Mr. Chope. As other hon. Members have said, the regulations are a positive and welcome move. They seem, however, to be based on slightly watered-down legislation. The requirements on business do not appear to be particularly burdensome, and the benefits are large, if the impact estimate of £4 billion to £6 billion per annum is correct, but the Department for Business, Innovation and Skills notes that in the current economic recession that might not be a realistic aspiration, at least in the short term.
I have a few specific points to make. There are no language requirements for the point of single contact, and I am therefore concerned that a practical obstacle might remain to companies being able to participate in the EU marketplace, particularly small and medium-sized enterprises, which are likely to have much fewer resources. Interestingly, the Dutch point of single contact will include an English language section, but that is not the case in all countries. Is any specific help being offered to SMEs, particularly with possible language problems?
My second point is that the benefits will be realised only if all member states implement the services directive as it requires. EuroCommerce, which represents the retail, wholesale and trade sectors of the EU, has raised several concerns about implementation across member states. It says that there will not be fully functioning points of single contact in a number of countries. Some countries have hardly started on the concrete actions that are required to make the points of single contact operational, such as organising information content and putting administrative procedures online. EuroCommerce is concerned that there are marked differences between member states regarding the level of preparation. It is also worried that there will be a lack of commitment to the process of mutual evaluation. Will the Minister comment on those points?
On the peer review process, the explanatory memorandum says:
“BIS’ plan is to highlight all the restrictions removed by other Member States and to challenge vigorously others where they have attempted to maintain existing barriers to services providers from other countries.”
That seems to be critical to ensuring that other member states meet their obligations and allow the benefits to be realised. A tragic example is provided by what happened with postal services: we lowered the barriers to trade in this country, but other EU countries did not. I echo the point that the hon. Member for Weston-super-Mare made about gold-plating. It is important that we do not do that in the UK in comparison with other member states.
Finally, the exemptions to the services directive seem a little arbitrary. Looking down the list, I can see why some have information and rules in place already, but the Minister has said that regulations either exist already or are “undesirable”. Will he comment on which ones are undesirable and on which basic principles have been employed to determine whether a service is undesirable?
10.53 am
On gold-plating, I have one plea regarding local authority services, which are distinct and different from private trading in so far as they respond to a democratic mandate. I am concerned that large companies—one might think of French refuse disposal companies—have established themselves with certain local authorities and are gaining something of a grip on that area of work in Great Britain. I have nothing against any foreign company working here, but I am concerned that local authorities will find themselves under pressure to save costs and establish bigger and bigger single contracts with overseas tenderers to gain economies of scale. That might be worth having. On the other hand, when we look at that balance sheet, we must recognise that the democratic deficit must not be allowed to widen in the pursuit of profit. Although I have nothing against profit—I have never wanted to work for a company that did not make a profit—it must be balanced properly by local authorities in the services they offer.
I am looking for assurances from the Minister that in the greater scheme of things, where the statutory instrument will play its part, the Government recognise that there are dangers inherent in how foreign companies are allowed to bid for services with British local authorities and so on. I hope that he has a sensible answer.
10.55 am
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Prepared 4 November 2009