UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 324i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

European Scrutiny Committee

 

 

Commission Communication:

The impact of the free movement of workers in the context of EU enlargement

 

 

Monday 9 March 2009

RT HON LORD MANDELSON

Evidence heard in Public Questions 1-36

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the European Scrutiny Committee

on Monday 9 March 2009

Members present

Michael Connarty, in the Chair

Mr David S Borrow

Mr William Cash

Mr James Clappison

Jim Dobbin

Mr Greg Hands

Keith Hill

Kelvin Hopkins

Mr Lindsay Hoyle

Mr Bob Laxton

Angus Robertson

Mr Anthony Steen

Richard Younger-Ross

________________

Witness: Rt Hon Lord Mandelson, a Member of the House of Lords, Secretary of State and Government Spokesperson for Business, Enterprise and Regulatory Reform, gave evidence.

Chairman: Welcome Minister. I am not sure how you wish to be addressed all the time.

Lord Mandelson: Call me anything you like. Green Warrior!

Chairman: We are very pleased that you could take the time. I know you have a very busy schedule but, as the Secretary said in the report to us, we did receive a document, as you know, from the Commission on the movement of workers within the EU which just happened to come at the time where there was some controversy about a number of items in the public domain and we thought it would be very useful to use that document to take some evidence to try and get behind the rhetoric of what was being said given that that is our duty as a Scrutiny Committee. I believe you would like to make a statement to begin the session and we would be happy for you to do that at this time.

 

Lord Mandelson: Thank you very much for inviting me. I think you are going to have the Immigration Minister later this week and he will have greater expertise than I on the particular Commission document. If I may, perhaps I could just set out some introductory remarks on the subject of the free movement of workers and to provide some context about the very important and substantial benefits that I believe the UK receives from the open EU market. Statistics alone paint a clear picture. Half of the UK's exports go to the 27 Member States of the EU making the European Union our biggest market. 3 million to 3.5 million UK jobs are linked to our trade with the European Union and roughly half of all UK inward investment is from the European Union which is worth about £315 billion a year. Over 320,000 British-owned jobs are operating in Western Europe. You will see that the importance of the EU, its single market and its openness to trade and the circulation of capital and workers is of immense economic importance to Britain. In view of these benefits, it is my firm belief that there is no advantage for the UK whatsoever doing anything to deny ourselves full access to the European single market and therefore any openness to protectionism, in the light of the current recession, would be a very grave error in the government's view. This would only lead to an erosion of the single market. It would lead to a tit for tat inexorable closing of markets and opportunities for trade for us in this country. It would lead very quickly to a race to the bottom as people tried to hang on to what they had and to exclude others which would very quickly create a downward spiral. It is also, in our view, very important to keep our labour market flexibility. This is the best way to ensure that people can move between jobs and to other jobs as the economy adjusts and recovers as it will. The UK has always been a firm supporter of the free movement of workers in Europe which is why we fully implemented the Posting of Workers Directive which has been in force now for some years in the EU. We have also supported the Commission's work with social partners and with enforcement authorities to look at the operation of the Posting of Workers Directive and we look forward to the results of that examination by the social partners. We will continue to resist calls for additional burdensome employment legislation, including from the EU. In particular we will fight to retain the right of individuals to opt out of the Working Time Directive's maximum 48 hour week. It is very important if British workers are going to compete for supply chain opportunities both in Britain and in Europe that we maximise their skills and productivity capability and that is why John Denham and I commissioned an independent review of the skills and productivity in engineering construction in Britain which will identify specific factors influencing success for UK-based companies bidding for UK and foreign engineering construction contracts. It will shed light on the current state of skills in this sector and it will shape our strategy of investment in the future. I think this is particularly important in the light of the unofficial disputes, strikes and stoppages that have been present in this sector in recent months and which of course it is very important for us to seek to avoid in the future. With those introductory remarks, I would be happy to take any questions from you and members of the Committee.

Q1 Chairman: You do come before us with a substantial and illustrious background coming from the Commission and you have seen this in operation. We all know that Article 39 of the EC Treaty was there when we signed up to join. It was there the right of EU masses to move freely to any Member State to take up employment but the report that we are looking at that has caused us to call this is a reference from the Commission on the impact of free movement of EU workers in the context of EU enlargement and, in a sense, that is the context in which a lot of the comments have been made. To be fair, some people - and that means some people in the employment area and some people in the trade union movement and some people in the political sphere - think British nationals are unemployed, or at risk of losing their jobs, because of migration from the new Member States. It may not be within your remit at the moment but do you have any sense of the scale of how many people from the new Member States have actually taken up jobs? In the report they give us some percentages on that. What we are trying to say is, is it a real fear or is it a fiction?

Lord Mandelson: I think it is important to note at the outset that the nationals coming here from the original eight new accession countries (the other two being Romania and Bulgaria), those whom for these purposes I would call A8 nationals, are helping to fill gaps in our labour market which British nationals are either not available to fill or are unwilling to fill. We have seen the expansion of vacancies in key sectors, not just hospitality and retail but in others, where the growth of these sectors has been unable in many cases to find British nationals to fill the vacancies that have been created. In many cases too, A8 nationals are supporting the provision of public services and very few claim benefits. The government's own research has found that there has been no statistically significant impact on wages from A8 migration, and indeed if you look at the state of the labour market at any recent time, and still to an extent now as well, there are around half a million vacancies available in the UK labour market. This shows that there are jobs available for British nationals despite the circulation of workers that has resulted from EU enlargement. In the case of A2 workers from Bulgaria and Romania, these are very small numbers we are seeing coming to the UK and we do not have any specific evidence on the impact of their movement on the UK economy but by inference I would conclude that it is very, very slight indeed. The last point I would make is that there are over 600,000 more UK nationals in employment now compared to 2001 and so the accession of new Member States to the EU does not seem to have had any discernible impact on the higher activity rate in the labour market against British nationals. Over nine out of every ten people in employment are UK nationals and over half the employment increase since 1997 is attributed to UK nationals. I think that from this evidence one can only conclude that there has not been an adverse effect on the employment of British nationals and, on the contrary, the addition to our workforce of EU nationals has filled jobs and vacancies that would otherwise have remained very difficult to fill by British nationals and, therefore, they have had a positive contribution to the UK economy as a whole.

Q2 Chairman: Can I take from the report of the Commission which says that one of the study's estimates is that the increase in average EU15 unemployment rate because of the flow is in fact only 0.04%, which is 1/25th of 1% difference and they say it will have a neutral effect in the long run. From our point of view, what is the basis of the government's statistics on employment of nationals of other EU Member States and how reliable do you believe the figures are?

Lord Mandelson: I have no reason to believe that the figures are unreliable but of course one has to look at this from a British point of view in the overall context of the operation of the single market and of course the immense opportunities that our companies and our nationals receive from their ability to circulate freely in the single market. The latest figures show that quite apart from the British migration to European Union countries, those who are seeking to resettle and work in other EU countries which is well over a quarter of a million UK nationals, 47,000 UK workers have been posted to the rest of Europe and that is the fifth highest number by member state. These are people, our own nationals, who are working for UK companies, posted or seconded to EU countries, in contrast to something in the region of 10,000 fewer EU nationals who are acting as posted workers in the UK. There would seem to be a strong balance in our favour of those posted workers from the UK taking advantage of opportunities to move with their companies to work elsewhere in the European Union.

Q3 Mr Laxton: You raise the issue of the half a million or so vacant jobs. I am not going to say they are wholly and exclusively jobs in the low skilled, low pay area but I would suggest they are predominantly that. I have families and individuals in my constituency who are highly skilled and have worked for many years in the power construction industry. Although no-one condones or supports the unofficial action that has taken, they ended up with a reasonable expectation that when one contract finished they would move on to another one and they found that was not the case and they were left unemployed. One can sympathise with the fact that they were extremely aggrieved about that. Can I go on to say that I do not think it necessarily helps the case where people talk about British jobs for British workers, a title that is quite inappropriate in many respects. For example, in my constituency, the rail industry, there is only one rail manufacturing company left in the UK, Bombardier, and they lose a £7.5 billion contract to Hitachi of Japan. There are real doubts and concerns about what impact that will make upon skilled engineers, skilled technical people and design people in the railway industry. Many of us have real doubts about how much of that will find its way into the UK when it could have been awarded to a UK-based company that could do that work and could sustain plenty of jobs. This just exacerbates individual's fears about what the future holds for them particularly in these skilled and technical areas.

Lord Mandelson: I think that in the light of the recent disputes, for example at Lindsey oil refinery, Staythorpe and Isle of Grain, the rather misleading impression has been created that the workforce there is drawn almost exclusively from countries outside Britain and that somehow Portuguese, Italian, Spanish or whatever, are essentially comprising the workforce at these locations. That of course is very far from the truth. People were generalising about those locations as a whole from the particular subcontractors around which there was some temporary controversy. If you look at those locations as a whole, well over two thirds of the workforce as a whole are British nationals. Of course there will be similar sites and contractors operating in sites in other countries of the European Union where there will be British nationals who are working there. You just have to take the example of the oil and gas industry to see the opportunities that are created by British companies operating elsewhere in the European Union offering jobs in those out of British sites for British nationals. You folded into your remarks a reference to Bombardier and Hitachi which is a separate albeit related subject. I know why you folded it in but it is in a somewhat different category of issue.

Chairman: I suggest that we do not want to take on the world trade debate right at this moment.

Lord Mandelson: Could I very briefly make this point since Mr Laxton raised it? It would be unfortunate if the impression was created that because Hitachi is a Japanese company it is neither going to be based in its manufacturing and production of trains here in Britain and because it is Japanese it is not going to be employing British nationals. Of course that is not the case, and before awarding this contract the government secured a very clear understanding and conditionality for this contract which will benefit British workers and a British-based supply chain.

Mr Laxton: I hope that is the case.

Chairman: I recall that when I had the pleasure of joining the 92 Congress in their training week, Robert Wright was made the Labour Secretary in the middle of that session at Harvard and he said he did not care what kind of flag flew outside the factory as long as they paid in dollars and hired American labour. I think that is a lesson for all of us.

Q4 Angus Robertson: Lord Mandelson raised a very important point relating to the oil and gas industry. There are literally tens of thousands of people in that sector who work out of Aberdeen. Many of them live in the north of Scotland but elsewhere in UK as well. A great many of them work in other sectors of the North Sea, so outside the UK sector of the North Sea, and some even further afield. It has not been well reported but a great many of them are very concerned about the calls that have been made for a more restrictive approach to the movement of labour within the EU or other countries. Is the Minister aware of that and can he categorically rule out any changes, or the acceptance of changes, by the UK government which would mean that these people would no longer be able to work in these other sectors of the North Sea or elsewhere?

Lord Mandelson: I can categorically rule out any introduction of restrictive measures that would prevent British nationals, including tens of thousands of workers from Scotland, benefiting from these opportunities overseas. We have to understand that half of all Scottish oil companies' revenues are generated abroad. There is a very good reason for this and it is that our history of North Sea oil exploration has given UK-based companies a wealth of experience and expertise in operating in very difficult environments and this of course leaves them very well placed to compete for exploration work around the world. These are companies who can supply workers with a wealth of technical, operational, professional skill and expertise who of course built up that experience and expertise because they are gaining from working on foreign contracts during the course of their career. Just to offer two examples, the Wood Group, founded 30 years ago in Aberdeen, employs more than 28,000 people worldwide and operates in 46 different countries. AMEC employs 23,000 people in 30 countries worldwide based on the experience and expertise they have built up in North Sea exploration. Of course the last thing we would like to see is any restriction being placed on those companies and those workers as a result of any temptation in Britain to adopt protectionist measures of our own.

Q5 Mr Borrow: You mentioned earlier that citizens of the EU can generally work anywhere within the EU but that is not a complete right in that there are restrictions of flexibilities within that. I notice that the government has altered the rules as far as seasonal agricultural workers are concerned by increasing the numbers of Bulgarian and Romanian workers that can come and work in the UK. I see that is a response by the government to pressure from farmers, such as those in my constituency, to have greater flexibility around that issue. I would be interested to know whether, as part of looking at the flexibility of existing rules, the government is currently in discussions with the European Commission about possible changes to the rules within the flexibility of the overall package of measures around Article 39 that can be brought in to recognise the need for some changes given the increasing level of unemployment in the European Union.

Lord Mandelson: The Worker Registration Scheme which was introduced in 2004 has helped us to monitor access to our labour market by migrants from the eight non-Bulgarian and non-Romanian accession countries. We are currently considering exercising our option to maintain this scheme rather than to scrap it in April of this year which was the original thought. The point of this is that it does give us the chance to monitor carefully as a transitional measure the migration that is taking place and to help us manage this migration. It has helped us to monitor access to our labour market and to make adjustments as appropriate where it is in our economic interests to do so, where there is a demand for such labour, where there are vacancies in the UK that have not been filled by British nationals and where those companies and that economic activity will be helped by looking for those vacancies to be filled from beyond our borders. We will maintain that flexible approach. If you look at movement of labour outside the EEA area, we have, as you know, a points-based system that helps us meet our business and economic needs with employees with skills that we need. We will continue to build on our experience of that points-based system in order to manage migration in a flexible and appropriate way which helps meet our economic needs. As you know, adjustments were announced just in February by the Home Secretary and we will continue to keep the operation of that system as a whole - and of course that does not apply to the EEA area - in a way that meets our economic needs.

Q6 Mr Borrow: Could you confirm that there have been no discussions between the Commission and the UK government, or between the UK government and the governments of other Member States, about altering the existing rules around free movement of labour in response to the current European-wide recession?

Lord Mandelson: No, there have been no such discussions as far as I know but that is a question you might also give to the Immigration Minister when he comes before you.

Q7 Mr Borrow: Have any of these issues been raised with the European parliament by UK trade unions?

Lord Mandelson: No. No UK trade union has asked the government to introduce a more restrictive or protectionist attitude to the free circulation of labour within the EU.

Q8 Mr Hoyle: Can I take you back to a point you made earlier? You quite rightly said if there was protectionism you would step in and do something about it. Part of the Lindsey Oil Refinery was that the contract went to the Italian company, nothing wrong in that they bid for it, but they would not employ UK nationals. The fact is they would only employ Portuguese and Italian workers who worked for the company and nobody from the UK was allowed to apply for a job on that particular part of the contract. I wonder if you would like to mention what your views are on that?

Lord Mandelson: It is not true to say that no British national was allowed to apply for that or other labour. It is, however, true to say that in the case of the Italian company, IREM, the contract was, as you know, given to them after the previous subcontractor was unable to fulfil their contract to deliver the work within the timescale that they had originally been contracted to do. This left the core company, TOTAL, in a very, very difficult and awkward situation. Just bear in mind that when a subcontractor fails to deliver the contracted work on time it is the originating company, in this case TOTAL, that has to absorb all the costs of that. They have nowhere to pass these costs on to and for that reason the original subcontractor chose to remove itself from that contract and for that reason the work was transferred to the Italian company who drew on their fixed workforce in order to get the work done. The point I would like to make in this context is that where skill levels or productivity levels are such that British subcontractors are unable to fulfill a contract then our job as a government is to help ensure that those skill levels and that productivity is raised and improved so that British-based companies and their workforces are able to compete and win contracts and fulfil them so that these subcontracts do not go elsewhere. We cannot stop them going elsewhere. There is a freedom within the single market but obviously we want to see as many of these supply chain opportunities being taken up by British subcontractors and British workers but they do have to compete for those and therefore our job is to help them do so.

Chairman: Just to clarify what has put been on the record, you used the word "fulfil" a few times.

Lord Mandelson: Carry out.

Q9 Chairman: Do you mean finish? The contract was unfinished. It was not that it was not started; it was unfinished.

Lord Mandelson: It was unfinished in the time that they were originally contracted to do this work. I think that within the time prescribed and agreed only 40% of the work had been carried out.

Q10 Mr Cash: On the Posting of Workers Directive, would you agree that the arrangements under the existing Court of Justice rulings, including the Luxembourg one, should be construed not only as providing free movement but also fair movement for British workers, in other words British jobs for British workers are on a free and fair basis? You have just given us your interpretation of the circumstances in which these matters arose at Lindsey, the Isle of Grain and Staythorpe but the matter did also go to ACAS and, so far as I know, and I may be wrong, the ACAS report has not yet been made available to everybody. You obviously have seen it, or I presume your officials have seen it if you have not, which sets out the circumstances. Do you not agree that it would be very important for everybody to know, in the light of what is at stake - and could you make available that ACAS report which must have gone to the government by now - exactly what it does say and have it placed in the library of the House of Commons?

Lord Mandelson: The full report of ACAS was published on the day I received it. I have no explanation to offer as to why you personally do not possess a copy. If you would like a copy which is in my file, I will happily leave it with you when I leave the meeting. There is also an ACAS website if you would like to go on the web site and see the report there. Hard copy or net, take your choice.

Q11 Mr Cash: Would you agree with my point which is at the heart of this that we need to have not only free movement but also fair movement which will ensure that where circumstances arise where British workers are put at a disadvantage, a less favourable arrangement than they have thought they were getting, that they should be entitled to both free and fair treatment?

Lord Mandelson: I do not follow the question.

Q12 Mr Cash: In the circumstances of the Lindsey refinery there were many people who were coming on radio and television indicating that they thought they were at a severe disadvantage. You are saying, and you are saying the ACAS report says, that there was no real disadvantage as respects the UK workers. How is it that they continue to take the view, Unite and other people in those unions, that they were in fact being treated unfavourably by comparison with the foreign nationals? Do you think they were entirely wrong? Do you think the ACAS report proves they were wrong? Do you think that it should not only be free movement but also fair?

Lord Mandelson: Do you mean free and fair access to the job opportunities at Lindsey or their movement across the European Union?

Q13 Mr Cash: I am talking about not only the circumstances as they arise for those three cases that we have mentioned but also with respect to the question of the principles that should be applied. Once a Court of Justice ruling has been given, as you probably know, you cannot change that except with the unanimity of all the Member States. The question at principle is whether in fact you would agree that the arrangements should not only be free movement, which is a fundamental freedom under the European Treaties, but also that it should be fair? Quite clearly Unite did not regard the arrangements as fair.

Lord Mandelson: The only representative of Unite whose contribution on the media sticks most clearly in my mind was the lay official who said that he would have as much objection to people being employed at Lindsey if they had come from the Isle of Wight or the north of Scotland as from Portugal or Italy. I remember him making this observation twice on two different occasions.

Chairman: I think the gentleman specified Orkney. I do not know what he has against people from Orkney.

Lord Mandelson: Your other point about the European Court judgments, you will have to explain to me how you think those judgments affected the fair movement or access of British nationals to those jobs because I do not understand how they did.

Mr Cash: You are in the position of answering the questions at the moment.

Chairman: Can I suggest we move on?

Mr Cash: Your Minister of Employment indicated to me that he did see a connection; you obviously do not.

Lord Mandelson: If you could explain to me what the connection is, I would be very happy to comment.

Q14 Mr Clappison: Can I say that I do not dissent from the view which you have taken of the freedoms of the European Union and the free movement of people but I do dissent from you on the statistics and the arguments which you used today to support the government's policies particularly the effect it has had on UK workers. In your introductory remarks to us you chose to highlight the figure of an increase of 600,000 in UK nationals in employment since 2001 and you thereby drew the connection between the number of nationals of this country in employment and the consequences of the A8 accession, but you and I both know that the A8 countries did not join in 2001 but 2004. The figure since 2004 is that since then the number of UK nationals in employment has fallen by 200,000 whilst the number of non-UK nationals has gone up very substantially. Do you think the figure you used was misleading?

Lord Mandelson: No, I do not. The figures you are drawing on do not contradict our view based on the statistics that over nine out of every ten people in employment in Britain are UK nationals.

Mr Clappison: With respect, you are now shifting the statistics you quoted originally. The argument which you are making in support of it is that there has been no effect upon UK employment because of the accession countries joining the UK. The figure you chose to use in your introductory remarks was an increase of 600,000 since 2001. Can I spell it out to you? Since those countries joined in 2004, that was the accession date not 2001, the number of UK workers has fallen by 200,000.

Lord Mandelson: Which is not a very substantial number in the context of the overall UK workforce I think you would agree. Are you saying that the number of UK nationals employed out of the total has had any discernible difference made to it since the accession of 2004?

Mr Clappison: What I am saying is you cannot use the statistic which you used because it is a misleading statistic. You cannot say there has not been an increase.

Lord Mandelson: The figure you seem to be alighting on seems to be an extremely insignificant one and one that does not have any discernable statistical bearing on the argument one way or the other.

Q15 Mr Clappison: It has gone down more or less consistently since 2004. Do you know today how many A8 nationals there are in this country working?

Lord Mandelson: There probably are, in Mr Newman's briefing, the figure but I do not know off the top of my head what it is. I would be very happy either to give it to you directly or make sure the Immigration Minister when he comes before you has the figure to hand.

Q16 Mr Clappison: It would be helpful to know. Do you know the estimate which the government made before accession of the A8 countries who were likely to come to this country to work?

Lord Mandelson: No. Due to very regrettable circumstances I was not a member of the government prior to the accession in 2004 and shortly after I went to Brussels.

Mr Clappison: The estimate which the government made was about 13,000 people every year. The figure, which you do not know, I suggest would be rather more, in fact significantly more, than that. I would suggest to you that as compared the arguments you have made that this was all carefully planned to fill labour shortages it is not nothing of the sort and that it was really rather chaotic and unforeseen.

Lord Mandelson: I am afraid that is a conclusion you are entitled to draw.

Chairman: Can I just make the point, Mr Clappison? The figures should be available because the Home Office minister said in January that the government had not yet decided whether to require workers form the A8 countries to continue to register to the Workers Registration Scheme after the 1 May 2009, which means they are at this moment registered and therefore should be available. My conclusion would be that since it is a very useful statistic to have we should not withdraw from asking people to register under that scheme.

Mr Clappison: Chairman, you will know that the purpose of that scheme is not actually to register how many people are working in the country but to entitle them to claim benefits which is rather a different thing because, as the Secretary of State said, there are many people who come to this country without seeking to claim benefits. The figure of the Workers Registration Scheme is much smaller than the number actually working in this country. The figure, if I can assist the Secretary of State on this, which the Office of National Statistics gives you is half a million but that does not include many of the A8 nationals. That does not include people working here for less than 12 months or living in hostels and I believe the figure is actually much more than that.

Lord Mandelson: I can only suggest that the Immigration Minister is a handier port of call for you to obtain these figures from than the Secretary of State for Business.

Mr Clappison: Perhaps in future you will have a little more caution in brandishing some of the statistics which you use in your opening remarks as justification for the government's policies.

Lord Mandelson: The justification for the government's policies is the huge economic benefit which I do not hear you contesting.

Mr Clappison: I said at the beginning I was not dissenting from the arguments but from the statistics which have been misleading and ill thought out, the arguments you have used which have been wrong and the policy of the government which is chaotic. I am not arguing against the free market.

Lord Mandelson: What are the policy implications that you are seeking to draw from this exchange and what would you like me, as a member of the government, to take back to my colleagues from this interesting exchange?

Mr Clappison: One would be the need to command the confidence of the public which can only be done through the honest presentation of statistics, something which is very important and something your colleague coming to us on Wednesday is attacking and seeking to bully the Statistics Authority.

Lord Mandelson: Are there policies that you would like us to change in relation to the free movement of people or goods?

Mr Clappison: The government itself changed its policy over the admission of the A8 and the A2 countries because whereas it admitted the A8 countries with unrestricted access, for the much smaller number of people involved in the A2 countries the government then chose to impose restrictions on them which would suggest the government's policy has not been as well thought out as you believe.

Lord Mandelson: I will take that as a no then. There are no policy implications or changes that you would like me to take back to my colleagues.

Chairman: We will now move on and people can read the record and reach their own conclusion as to the policy implications of your questions.

Q17 Mr Borrow: Following on from Mr Clappison's point, he did mention that the government treated the A8 in a different way than the government did as far as the A2 are concerned and one could interpret that as being a recognition that circumstances had changed between the first wave of new entrants and the second wave. Within the provisions of the accession treaties it does allow, in exceptional circumstances, for the government, even when they have given free movement for the A8, to go back and re-address that as a later stage and impose further restrictions. I would be interested to see if there are any circumstances where the government would consider going back and looking again at those original decisions in light of the circumstances in 2009 or is the government satisfied that the decisions they made originally in respect of the A8 should continue? In respect of the A2 I think you mentioned earlier that you were not inclined to lift the existing restrictions in April of this year and leave them as they are.

Lord Mandelson: If there are adjustments to be made then the time to make them I think would be in the context of our review of whether or not to continue the scheme beyond April 2009.

Q18 Mr Borrow: At that point of the review when you come to a conclusion in respect of the A2, that would be the point at which, if you were to, in exceptional circumstances, look at the A8 policy you would make such an announcement?

Lord Mandelson: I do not have public responsibility for the operation of the scheme. The Home Office is going to be here so I do not want to pre-empt what my colleagues in that department might do. All I am offering you is an observation that if adjustments were to be made that would seem to be an opportune time to do so.

Q19 Chairman: As the Secretary of State for Business, Enterprise and Regulatory Reform you must surely then be anticipating making a serious input to that and your assessment of the condition of the UK economy at that time I presume.

Lord Mandelson: The Home Secretary has already indicated that she is attracted to keeping the Worker Registration Scheme in place and I have no view in my mind at present that might lead me to oppose that.

Q20 Richard Younger-Ross: You mentioned the points-based immigration system in a response earlier so can I just take you up on that. First of all, like Mr Clappison I believe in free movement. I think it is beneficial to the economy and to the UK. There are times with any free movement and any freedom they can be abused and there is a danger, as we have with the disputes in the UK, where people feel that another tenet of the market or the EU of social justice is being undermined. When this Committee was in Portugal before its presidency we were given evidence that there were 95,000 Ukrainians living in Lisbon. The vast majority of those gained access to the EU and the right to work in Portugal via the German Embassy. They went to Germany and then went to Portugal. Is there not a danger, and perhaps a case for some regulation, over people that come into the EU from outside who then have access to work via another country in the EU? There is a danger that unscrupulous employers might see that as a lucrative way to bring in cheaper labour undermining local agreements that have been arranged in any of these EU countries. It rather undermines any regulation or points-based system which the immigration authorities may put in place.

Lord Mandelson: The points-based system itself is justified and sound in its operation. It helps us get the non-European migrants who have the skills that business and the economy in this country needs and it does so on a restrictive, carefully screened and policed basis and I think that must be right. Obviously it is sufficiently flexible that it can be adjusted according to economic circumstances. For example, in response to the current recession the government announced in February changes to the points-based system tightening the criteria for highly skilled migrants, strengthening the resident labour market test concerning the use of the publication of the Shortage Occupation List and also asking the Migration Advisory Committee to further consider the way in which foreign workers are currently able to enter the UK to work. I would have thought the point that you are raising concern about, which I would share, is something that needs to be taken up in our request to Migration Advisory Committee to examine precisely the ways in which foreign workers are able to enter Britain illegitimately using the single market wrongly as a short-cut to our labour market.

Q21 Richard Younger-Ross: Would you accept there ought to be a restriction on where people can work in the EU once they have gained access to the EU for a period of time?

Lord Mandelson: We have to be very vigilant and make sure that it is only those with a lawful and legitimate claim to move freely within the European Union.

Richard Younger-Ross: The 95,000 in Lisbon are there legitimately.

Q22 Mr Steen: On this business of the Workers Registration Scheme you mentioned, are you satisfied that there are sufficient checks in place to ensure that workers coming to the UK do come in for a legitimate job? I wonder if you have discussed with other Member States, and if you have not whether you would, the growth of human trafficking bearing in mind with the economic downturn there is going to be increased human trafficking throughout the EU. I wonder what bearing the right of free movement of workers is going to have on the further enlargement of the EU. I have given you about three questions rolled up into one.

Lord Mandelson: The one that strikes me as the most important is the one concerning trafficking, which is reprehensible and which the government has measures and agencies in place to limit and which we will continue to take the strongest possible action against. To be frank, the registration scheme does not have a bearing on trafficking of labour. That is a separate category of activity and of grave concern to the government and we will continue to take measures to counter it.

Q23 Mr Steen: I think Britain has done a great deal in the field of trying to resist human trafficking and to put schemes in place so that traffickers do not get easily through the borders but this is not so with other EU countries. What happens now is that Britain is diverting a lot of the workers and the traffickers to other countries because it is getting more and more difficult to get to Britain. Spain and Italy are now destination countries where Britain used to be and with the economic downturn that is going to get worse. I am wondering whether you feel this is something you can raise at the highest level with other EU countries particularly the Eastern European countries.

Lord Mandelson: In the case of Spain and Italy and other southern European countries their main problem arises from their geographical proximity to Africa not Eastern Europe. That is where they are most exposed. The EU as a whole, I recall through my days as a member of the Commission, have put in a great deal of help and intervention and resources to help those exposed Member States withstand what is a very large influx, currently and potentially, of illegal migrants coming a great deal, but not only, from Africa and North Africa in particular.

Chairman: We all recognise Anthony's particular interest as the chairman of the group against trafficking in this parliament. Can we move on very specifically to the Posting of Workers Directive.

Q24 Kelvin Hopkins: The trade unions were seriously concerned about the ECJ judgments in the Viking-Line case, and indeed I put down an Early Day Motion on the Viking-Line case myself which was signed by a considerable number of Labour members concerned with trade union links themselves. Do you share their and our concerns?

Lord Mandelson: I do not, no, because I think that the conclusions that many people have reached about those ECJ verdicts are hotly contested by lawyers and academics and I am not aware of any settled definitive view that has been reached about the practical impact of those judgments. Nonetheless, they have sparked a lot of debate, so far inconclusive but a great detail of debate, and a lot of concern and it is only right, in my view, that the Commission, through the expert panel that it has established with the involvement of the European TUC and the employer's organisation Business Europe, should examine this very carefully. The British government supported this initiative by the Commission in December. I gather it has been getting its work under way. It has been delayed by the inability of the social partners to agree specific terms of reference but now their meeting to examine this will take place this month and I welcome that.

Q25 Kelvin Hopkins: You will recall that the International Transport Workers Federation, led by our former TUC colleague David Cockcroft, challenged the writing of the judgment and spent a large sum of money in doing that and lost. Alarm was also expressed by John Monks at the time on behalf of the ETUC, and subsequent to that the Irish referendum was lost, and indeed alarm amongst trade unionists that the European Union is shifting, or has shifted, substantially towards the interests of employers rather than workers. Is this not all leading in a direction which is going to be very divisive for the European Union?

Lord Mandelson: There will be different views. There will be those who will place the greatest emphasis on support for the single market and free movement of workers. There will be others who place a different emphasis on what they regard as appropriate rights for workers in those countries to where workers are moving to take advantage of these rights and their ability to maintain the terms and conditions of collective agreements and of course their desire to take strike action to enforce those collectively negotiated agreements. We have to strike the right balance between support for a single market and workers' rights. I think we have done so in our implementation of the Posting of Workers Directive but you are quite right to say that there are some who believe that the particular ECJ judgments that you referred to somehow upset that balance or are leading to it operating in a way that is detrimental to employee rights. All I am saying to you is that no definitive view has been reached about that. It is hotly contested amongst lawyers and academics including the government's own lawyers.

Q26 Kelvin Hopkins: You talk about striking a balance but this appears to the trade unions as a quantum shift of power from one where trade unions had certain rights to one which is now very much on the side of employers. Did you make any representations to the Commission and did you speak to other Member States about this, or have you done, and expressed concern that this shift is not only going to be seen by workers as against their interests but could have serious political implications for the future of the European Union?

Lord Mandelson: I am aware of the claims made by trade unions but those claims are hotly contested. I cannot accept that because somebody makes a claim that it is therefore true or because of an interpretation or a construction they wish to place on a particular court judgment that that must be right. I cannot accept that.

Q27 Kelvin Hopkins: When crews are replaced by an entire crew from another nation state with much lower pay, it is fairly clear what that is about. There have been three referenda where ordinary trade unions have had a major role in defeating those referenda: in France, Holland and in Ireland. In all three there was a large trade union component in that No vote. Are you not concerned about that?

Lord Mandelson: Of course I am concerned. We could have a lengthy political discussion about the motives and objectives of those trade unions in seeking to use the opportunity of a referendum in order to bring about changes in legislation which legitimately they were seeking but which, from the point of view of the working of the economy and the labour market as a whole, others would feel were not desirable changes to make. Of course if you have the opportunity of a referendum and a chance to beat a drum on behalf of your interests, or indeed on behalf of greater protection for your interests against what they might regard as foreign workers, you cannot be entirely surprised that they seize that opportunity. That is why I do not think referenda are a particularly good idea; they lead to populist campaigns and misleading propaganda.

Q28 Keith Hill: I was going to say something in the same vein but my question is certainly not in the area of populist propaganda although I have to say since the Secretary of State has alluded to the question of honesty of statistics I cannot help but recall that the party of which Mr Clappison is such an eminent representative did change the basis of the calculation of unemployment statistics 19 times. I dare say that was in the interests of honest statistics, Secretary of State.

Lord Mandelson: You could not expect me to make such partisan comments.

Keith Hill: Let me revert to the trade union issue raised by Mr Hopkins. You will recall that in the case of the East Lindsey dispute at the TOTAL plant there was no question of foreign workers being paid at a lower rate.

Lord Mandelson: That was the ACAS finding.

Q29 Keith Hill: One gathers that TOTAL honours the collective agreements in the construction engineering unions and the subcontractors therefore pay the same rate. However, the fact that UK collective agreements are not legally enforceable means that foreign posted workers can be paid the national minimum wage even where a preferential collective agreement applies to national workers and a perceived inequality could therefore arise. Do you think this could be justified?

Lord Mandelson: The inequality of treatment?

Keith Hill: The perception that people doing the same rate of job because of the non-enforceability under the law of collective agreements means that foreign posted workers in the UK can simply be paid the national minimum wage.

Lord Mandelson: I think it would be better from everyone's point of view if voluntary agreements were to be operated and observed by everyone across this industry. The engineering construction industry has a national agreement. They provide very clear advice about following and honouring the terms of that agreement. The government would like to see that agreement voluntarily respected by everyone concerned.

Q30 Keith Hill: Is there any question of an amendment to the Posting of Workers Directive to ensure that UK collective agreements might come within the Directive?

Lord Mandelson: No. There is no proposal by any government for that.

Chairman: Can I remind you what the Prime Minister said in reply to my question at the Liaison Committee recently on that specific topic, that the Commission were looking at it and he said that his government were looking at it and if necessary he would bring in legislation.

Lord Mandelson: That is why I was extremely careful in my own answer and said the government presently has no proposal to make the sort of change Mr Hill has described.

Chairman: Can I point out to you that in answer to Mr Hopkins questions that one of the judgments specifically, the Laval judgment, was about the fact that the workers coming in were being paid the rate for the job for the country from which they came because they do not have a national minimum wage in that country to which they were going to work. We have a national minimum wage and you could have a situation where if a company wished to do so they could actually pay someone £5, or whatever it is at the moment, an hour even though they were a riveter, a welder, an electrician, a skilled engineer, alongside someone who, in a collective agreement on the same site, would be paid the proper rate for their trade. That is possible. Thank goodness, certainly to my knowledge, in Scotland we have followed this very closely since I have the refinery at Grangemouth in my constituency and that has never been broken in the 16 years I have been there but it could be and that is what people are concerned about. The national agreement for employment in the construction industry, which is respected even by TOTAL who are not a British company, could be broken by someone who won a contract and they would win in the Court of Justice if you looked at the judgments that have taken place so far. Is that not a dangerous situation that we could get rid of by making the national agreement universally binding? It is so in Ireland and it could be in this country.

Lord Mandelson: In UK industrial relations at the moment we do not have a system in which voluntarily collective bargain agreements can be enforced on those who do not voluntarily subscribe to it. What you are suggesting is that you would use a change in European law to carry out a very fundamental shift in UK industrial relations practice and that is not something the government would support.

Chairman: I do know that the government of the time, and it was not the UK government of this present colour, did in fact oppose the Posting of Workers Directive because they did not believe that workers should have the protection it gives them. The fact is we did make a fundamental change at European level to the relationship which is a totally free market in labour with no controls. The Posting of Workers Directive at least gave the minimum wage. It does not seem to me to be, particularly in these difficult times economically, a great step to make the national agreements, which everyone agrees to and everyone seems apply, to be universally binding in the industries in which they are agreed. That would then safeguard everyone, all workers from the EU, from exploitation.

Lord Mandelson: In the case of a given country or a particular company, it is up to them voluntarily to operate those collective agreements. It is open to them to do so. What they cannot do is to fall below the statutory minimum of rights, the national minimum wage, holiday entitlements, maternity and all the gambit of employment rights for which we have legislated in this country. They cannot disregard them or fall below them and that is the essential principle underpinning the Posting of Workers Directive of which we will not resile.

Chairman: Do you not see a contradiction in what you were saying earlier about the need to skill up the people in the industry, the people that certainly I know and I am sure Mr Robertson and other people in the oil and gas industry see those skills and see them being rewarded properly. What you are saying is it does not seem to matter if these skills we value in a UK worker are paid £5.35 an hour if they come from Poland or Latvia or Lithuania or any other part of the European Union. That to me does seem to contradict the idea that we want people to be skilled up if you are not going to be rewarded because your chances of working are going to be reduced because someone can do it for £5.35 an hour.

Lord Mandelson: Because you are being undercut. You cannot be undercut below the statutory minima which operates.

Q31 Chairman: You cannot expect an engineer or a fitter or an electrician to work for £5.35 an hour if he was British surely.

Lord Mandelson: I think you are talking about different parts of the employment market.

Chairman: No, it is the same market. This is the worry, that people will be brought in and be paid by the Posting of Workers Directive rules which is the minimum wage.

Lord Mandelson: I do not think you are talking about the engineering end of the construction market with respect Chairman.

Q32 Chairman: Why are people marching? Why are people joining and believing the propaganda you say is false?

Lord Mandelson: One of the reasons is because they no more wanted people coming from the Orkneys or the Isle of Wight than from Italy or Portugal because they do not believe in the single market and they do not believe in the free circulation of workers.

Q33 Mr Cash: That was really at the heart of what I was saying earlier about the question that it should not only be free but also fair because this Posting of Workers Directive at present, as a matter of law, does not require the matching of local rates of pay for comparable work. The question that the Chairman has been asking is extremely important because if it is clear that there are people who know what is going on, on the ground, and also know that the Directive does not require matching of local rates of pay for comparable work then they are liable to feel very aggrieved. Of course under the court judgments which we have been mentioning, and also the Luxembourg case which I mentioned earlier, it is possible to make adjustments but only on the basis that you produce evidence of what is described as necessity and proportionality but there is room there. The Commission, as we understand it, is looking at all this in order to try to get a degree of fairness into the situation. You seem to be suggesting that the government is looking at the situation but is not actually prepared to step up to the plate. Maybe I am pre-judging the outcome of those discussions. You do admit that the government is discussing the question; it is just that the proposals of the Commission which are around have not yet been published. Is that more or less the situation?

Lord Mandelson: No, that is entirely wrong. There are no proposals in the Commission. The government is not discussing it. The social partners in Europe, at the request of the Commissioners, are examining it and they have their first meeting to do so this month.

Mr Cash: The Commission, according to what the Chairman understood and according to what we have been informed, is considering the operation of the Directive but they have not published amendments yet.

Lord Mandelson: The Commission has no proposals and is not on the verge of therefore publishing any amendments or revisions to that Directive.

Chairman: I think you are entirely correct and I would not contradict that answer. The statement is quite clear in the official journal of the European Union. It says the task of this committee, which you have just referred to which is the committee of experts, is to examine any questions, difficulties and specific issues which might arise concerning the implementation of practical application of Directive 96/71 EC, which is the Posting of Workers Directive, or the national implementation measures as well as its enforcement in practice.

Lord Mandelson: That is correct.

Q34 Chairman: The question is: what is the government's policy towards this committee and will the government make a submission to that committee?

Lord Mandelson: I originally said to you in answer to the previous question that at the Employment Council in December the government supported the establishment of this examination. We supported the initiative of the Commission to examine it. That is not the same as saying, as Mr Cash was suggesting, that the Commission has proposals let alone amendments that it is about to introduce.

Q35 Chairman: I did say I was not going to contradict your answer by putting the question. Will the government make a submission to this investigation that is going on in this Commission committee?

Lord Mandelson: The Member States have not been invited to make submissions. The Commission has asked the social partners, the ETUC and Business Europe, to examine this but they will draw on an expert panel drawn I believe from officials operating in this area of policy from the EU Member States.

Q36 Chairman: Is it not true that the European Parliamentary Labour Party will be standing on a manifesto that in fact the PSE manifesto, which is calling for amendments to the Posting of Workers Directive, to close the loopholes that have been opened up by the European Court of Justice? Is that correct or did I misread the manifesto?

Lord Mandelson: I am reading in my briefing that is the case but I do not have any greater knowledge.

Chairman: I read it last night and it said so I can assure you.

Lord Mandelson: If it is in your briefing and mine then it must be true.

Chairman: I can assure you it is. Thank you for your time and your tolerance. We have kept you a bit longer than anticipated.