Smart Regulation
The Committee consisted of the following Members:
† Binley, Mr Brian (Northampton South) (Con)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Fallon, Michael (Minister of State, Department for Business, Innovation and Skills)
† Gyimah, Mr Sam (Lord Commissioner of Her Majesty's Treasury)
† Hopkins, Kelvin (Luton North) (Lab)
† Lloyd, Stephen (Eastbourne) (LD)
† Mills, Nigel (Amber Valley) (Con)
† Perkins, Toby (Chesterfield) (Lab)
† Rees-Mogg, Jacob (North East Somerset) (Con)
† Rotheram, Steve (Liverpool, Walton) (Lab)
Simpson, David (Upper Bann) (DUP)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
Margaret McKinnon, Committee Clerk
† attended the Committee
European Committee C
Tuesday 7 January 2014
[Annette Brooke in the Chair]
Smart Regulation
8.55 am
The Chair: Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant documents to this Committee?
Jacob Rees-Mogg (North East Somerset) (Con): Thank you, Mrs Brooke. May I say what a pleasure it is to serve under your chairmanship at this happy start of the new year, with the celebrations of Christmas having finished on Epiphany yesterday? I would like to describe briefly the background to these documents and explain why the European Scrutiny Committee recommended today’s debate. In the light of the concerns expressed about the complexity of EU legislation, the Commission launched, in December 2012, a regulatory fitness and performance programme—REFIT—aimed at identifying initiatives that will result in significant regulatory cost reduction or simplification.
The first Commission communication is concerned with regulatory fitness and, in particular, with identifying initiatives which that result in cost reduction and simplification, where the Commission summarises what has been achieved so far and what it intends to do; for example, by reducing requirements for reports and inspections, lowering fees and introducing a fast-track procedure for making legislative amendments. The Government welcome what has been proposed, but would like to see a comprehensive timetable for the proposed reforms.
The other Commission communication derives from the Commission’s smart regulation policy, in which evaluations are a key tool in assessing whether EU actions have delivered the expected results and in making performance improvement an integral part of policy making. The Government believe that this initiative is important in helping to identify opportunities for reducing regulatory burdens at European level, and the European Scrutiny Committee took the view that, in the case of both documents, this would be a timely moment to take stock of the state of play.
The Chair: Thank you, Mr Rees-Mogg. I call the Minister to make an opening statement.
8.56 am
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon): Mrs Brooke, may I repeat the best wishes of, I hope, the whole Committee to you for a very happy new year and welcome colleagues to this important debate? I am grateful to my hon. Friend the Member for North East Somerset for setting out the issues and for the opportunity to discuss the two recent explanatory memorandums that I tabled, which cover communications on regulatory fitness—REFIT—and
evaluation procedures. I welcome the Committee’s interest in our work to reduce the burden of European Union regulation on business.Cutting unnecessary regulatory burdens is a priority for the Government. Domestically, we have implemented the “one in, two out” rule to ensure that we are the first Government in modern history to leave office having reduced the overall burden of UK regulation. We must tackle regulatory burdens that originate at European Union level. The European Union faces unprecedented economic challenge, and our businesses need to be able to compete in a fast-changing global economy. We therefore need a regulatory framework that fosters innovation, helps to raise skill levels, and improves access to world markets. Cutting unnecessary EU red tape is essential to maintaining the competitiveness of European business.
We are not alone in making the case for reform. Thirteen other member states support our 10-point plan calling on the Commission to reduce burdens overall on businesses. The REFIT programme, in large part, is a formal response to that 10-point plan. It sets out more than 100 actions to reduce regulatory burdens, and we particularly welcome the Commission’s commitments not to take forward proposals on health and safety for hairdressers and on ergonomics, and to consider withdrawing the proposal for a soil framework directive. All those proposals would have introduced substantial and unnecessary costs for UK businesses. The Commission also commits to wholesale reviews of some of the most burdensome areas of legislation, including waste, and health and safety, which we welcome.
The communication on evaluation sets out plans for improving the Commission’s evaluation procedures. We strongly support its commitment to the “evaluate first” principle before introducing new proposals, and we support the Commission’s intentions to make its evaluations more thorough, consistent and effective. All that is very welcome, as are the commitments made by the Commission, but let me make it absolutely clear to the Committee that the Government continue to press for further and faster progress. In my regular meetings with commissioners, with the Secretary-General and with the President’s Cabinet, I continue to insist that we need to see more evidence of that commitment in reality.
In October, the Prime Minister’s business taskforce, which I chair, made 30 specific recommendations to cut red tape across the European Union and to remove barriers to competitiveness. That report also sets out the COMPETE principles, for example, calling on the Commission to publish impact assessments before mandatory consultations and introducing “one in, one out” at the European level. We propose that those principles should act as common-sense filter for all new European legislation.
The Government welcome that taskforce report and we are pressing the European Union to implement its recommendations. For example, we want to see early action to reform rules on chemicals, clinical trials, and interchange fees. At the October European Council, the Prime Minister shared the report with President Barroso and leaders of seven other member states, who all warmly welcomed the initiative and agreed on the need for further action. The conclusions agreed at that European Council reflected our ambitions for reform. The Council
was clear: rapid implementation of REFIT is necessary, as are ambitious further proposals to lighten the burden of EU regulation.We need a European Union that fosters competitiveness, innovation and growth, and regulatory reform is vital to achieve that. Crucially, reform must bring real benefits to businesses on the ground. The Government will continue to insist that the reduction of unnecessary burdens on business must lie at the heart of the Commission’s REFIT and evaluation work. I look forward to hearing the questions and views of other members of the Committee.
The Chair: We now have until 9.55 for questions to the Minister. May I remind Members that they should be brief? I am happy to take supplementary questions as well but we wish to keep this moving and have an efficient question session.
Toby Perkins (Chesterfield) (Lab): I have a couple of quick questions. First, ensuring that the needs of micro and small enterprises are considered at the forefront of EU policy making is incredibly important. There is always a balance between keeping an eye on the needs of small businesses and doing so on the basis of exemptions which potentially create a disincentive for those small businesses to grow and become large businesses when they are not covered by a lot of this regulation legislation. Will the Minister set out the Government’s approach to ensuring that the needs of small businesses are considered at the outset without setting bear traps for them down the line?
Secondly, what commitment is there to ensuring that it is not just about deregulating but about policing and ensuring equal application of existing regulations? In far too many cases, honourable businesses comply with regulations but then find that they are disadvantaged in comparison with other businesses that have not done so and that there is no policing of those measures. Thirdly, the Minister referred to his desire to see time scales applied so that we have some certainty about when all the measures will be implemented. What success has he had in ensuring that there is certainty about the time scales that will be applied to the REFIT programme?
Michael Fallon: There are a number of questions there and I will do my best to answer them. The hon. Gentleman makes a perfectly fair point about legislation exempting or being adapted for small and medium-sized enterprises. Sometimes in the lifetime of a business there is a cliff edge. We have found examples of that in our work on deregulation in the Department. Indeed, we have found examples of a trade association advising businesses that they should not grow beyond a certain point because they would then be caught by new regulations. It is very important, where those cliff edges are visible, that they are smooth and there are transitional periods and that we do not have regulation that is a barrier to growth.
However, on SMEs and micros more generally, the real problem is not that there are too many hurdles to small businesses growing; it is that there are not any adaptations or exemptions at all. In the past couple of years, only a handful—I think less than 30%—of directives that affect business have any kind of adaptation for
small businesses, and there has been only a tiny handful, one or two examples, in which micro-businesses employing fewer than 10 people have been exempted altogether.We have had repeated commitments in the conclusions of European Councils, repeated to this House by my right hon. Friend the Prime Minister, of good intentions in this area, but there are far too few examples of new draft directives that have proper adaptation for small businesses or complete exemption for micro-businesses. That is a point that I continue to make in Brussels.
The hon. Gentleman makes a perfectly fair point about compliance. It is the job of the Commission to ensure that member states comply. We have a very good record in the United Kingdom of complying with European law. It is intriguing to see that other member states seem to take the risk of infraction proceedings a little less seriously than we do. That is a concern and something that we are looking at very carefully. There are other member states that we might generally consider to be pretty law-abiding who seem happier to take the risk of infraction proceedings being brought against them. It may be that in our own careful, cautious and law-abiding system, we have become a little too risk-averse. That is something that we need to bear in mind, but it is the Commission’s job to police the enforcement of European law. If the hon. Gentleman has specific examples of the type of case he mentioned, I would be happy to look at them.
Finally, the hon. Gentleman asked me about the timetable. This is pushing water upstream. We have to make the point continually that deregulation that reduces unnecessary red tape is in the interests of growth, competitiveness, and encouraging small and medium-sized enterprise, not least in those countries that have high unemployment and high youth unemployment, which is particularly the case in the Mediterranean countries. Growth in the SME sector is an important lifeline out of that kind of stasis.
We have not set specific timetables. One of the asks in our reform plan, published more than a year ago, was that we would like to see the Commission adopt a regulatory budget and approach to say what their target is for reducing the overall stock of regulation. We do that domestically by fixing a specific target and we have the “one in, two out” rule alongside it. We would like to see the same kind of levers apply at European Union level. The taskforce recommendations were published in October, with 30 detailed proposals alongside the COMPETE principles. We shall push forward each of the 30 in collaboration, I hope, and with the support of the other member states.
Jacob Rees-Mogg: I have a number of questions for the Minister. I can rattle through them, or take them as you would like me to, Mrs Brooke.
The Chair: Let us see how long that takes. If we think a break would be a good idea, we will take one.
Jacob Rees-Mogg: Thank you, Mrs Brooke. I will first refer the Minister to page 34, item 1, on the REFIT initiatives. At least three of the pending Commission proposals for simplification are not proposals for simplification but are, in fact, attempts to increase the remit of the European Union. I refer specifically to
energy, where the Community system for registration of carriers of radioactive materials should become an EU competence rather than a national one. I also refer to the proposal of the Commission for a new own resource based on VAT, and for the common consolidated corporate tax base, which I know the Government have previously opposed. Will the Minister say how much of this is simplification and how much is being used as cover for a further extension of EU powers?Michael Fallon: My hon. Friend has highlighted the difficulty in this area. What we sometimes champion as deregulation, other member states and officials in Brussels see as an opportunity for better regulation and simplification. Indeed, one can see how quickly that can lead to proposals for harmonisation and that old centralising coercive instinct that lies too often at the heart of the Brussels machinery. Perhaps I might write to my hon. Friend on the three specific points with details of the Government’s position.
Jacob Rees-Mogg: If I may take the Minister slightly further, to page 40 of the document, item 3, covering areas where the Commission proposes or is considering the repeal of laws or the withdrawal of initiatives. The first one, mentioned by the Minister, is the soil framework directive. That has been under discussion for eight years and absolutely nothing has happened. To what extent is the withdrawal of proposals or initiatives a sign of the Commission recognising reality, and accepting that its proposals simply did not command the support of member states and were not going anywhere? How much of this is a real effort at deregulation and how much is window dressing?
The Chair: Would it be convenient for the Minister if questions were put together so that he could answer several at a time? I am quite easy as to whichever suits the Committee.
Jacob Rees-Mogg: I feel slightly, Mrs Brooke, that if I ask them all separately the Minister has the opportunity—although in this case this Minister would not—to avoid answering ones that seem particularly unhelpful.
The Chair: We will try two together, then.
Jacob Rees-Mogg: Thank you, Mrs Brooke. I want to move on to the top of page 51, to the section headed, “Evaluation in the Commission: State of Play”. The Commission sets out five points for considering the effectiveness of regulations. Points 4 and 5 are:
“Is the EU action still necessary?...Can or could similar changes have been achieved without EU action, or did EU action make a difference?”
Will the Minister tell me if any regulations have been repealed or withdrawn on the basis of those points— the feeling that EU action had not been necessary in the first place?
To summarise the gist of my questions: has the Commission made any proposals that any part of the acquis communautaire should be repealed or that any powers should be returned to member states?
Michael Fallon: There are a number of questions there from my hon. Friend. On the first, the soil framework directive, I referred carefully in my opening speech to that directive as having not been withdrawn, as the proposals on ergonomics have been withdrawn. My hon. Friend will have noted the careful phrasing on page 40, which indicates that the Commission is keeping that proposal almost on a life support system and is still looking for further support for it.
I am not sure it is for me to comment on the motivation for the Commission on that. However, it is clear to us that there is not support among member states for the proposal, even if there were support from a future European Parliament. There is certainly not support from the British Government. I would hope that the wording simply reflects the reality that this proposal is not going to find its way on to the statute book. Let me repeat that it does not have the support of the British Government.
I was not clear about the second question that my hon. Friend asked. He asked whether the evaluation principle was based on whether action was needed. Is that the point my hon. Friend wished me to address?
Jacob Rees-Mogg: If I may clarify my question, the EU in its own document sets out the basis on which items will be repealed. The two points I referred to covered EU action not being necessary. I asked whether the EU had said that any proposal that had been withdrawn or suggested for repeal had been categorised in the Commission’s view as being where EU action was not necessary.
Michael Fallon: I am not sure it has been stated in such precise categorical terms, but that is the underlying judgment that the Commission has made, particularly in respect of the proposal on ergonomics, which involved the type of chair that people should sit on in offices. So yes, that is the underlying principle.
Thirdly, my hon. Friend asked me whether the Commission had yet come forward with any sizeable proposal on repeal of the acquis communautaire. The answer is no, but of course we have our own proposals under way as a result of the balance of competences review, which is past its halfway stage. We are looking carefully at which competences should be returned to member states—there is growing interest in other member states in that work—and I hope that that will form an important part of the Conservative manifesto at the next general election.
Kelvin Hopkins (Luton North) (Lab): I have three questions, which I would like to take separately if possible.
The Chair: Yes, indeed. If we then have to come back, because the Minister might want to clarify later on, we will do that as we ping-pong the questions.
Kelvin Hopkins: Thank you. The Minister rightly emphasises the point about regulation being unnecessary —we all want to get rid of unnecessary regulation—but what is unnecessary involves a judgment. Some people might see something as unnecessary and others might see it as vital. Can the Minister give us assurances that this is not part of a blanket deregulatory campaign across the board driven by over-simplistic market ideology?
Michael Fallon: Yes, I can. I hope there is common agreement now that we need to do everything we can to reduce unnecessary burdens, not least because we and the other member states now have to compete in a global market in which we are being outpaced not simply at the bottom end through wage costs and so on, which might be the underlying point of the hon. Gentleman’s question, but in the development of newer technologies and innovation.
I referred specifically to the worrying extent to which clinical trials of medicines, an area in which this country has enormous expertise and research capacity, are now being carried out elsewhere because of the burden of regulation at European level. That is a good example of how this is not simply a race to the bottom. The European Union has been going much further than other developed countries in the rules and regulations that it has been applying, and it is actually driving a key part of our pharmaceutical industry and our research and product development out of the EU to other parts of the global market, so this is certainly not a race to the bottom. We must be extremely careful that we do not continue to lose competitiveness to the United States, the far east or the fast-emerging new economies.
Our proposals, particularly in the business taskforce report, have of course been consulted on with businesses in the United Kingdom, and we were careful to consult business organisations right across the European Union through the European business organisations and also through our posts in each of the member states. We involved other business organisations and European companies in that work, and it represents a serious business judgment about what needs to be done to ensure that the regulatory burden is reduced and that all further regulatory proposals are subject to the ultimate test: does this make Europe more competitive against the rest of the world or not? I think the hon. Gentleman ought to support that.
Kelvin Hopkins: I thank the Minister for his answer and for his good example of advances in medical research that should not be constrained by European rules. However, does he accept that what is seen as a burden by employers might be a necessary protection for workers? I refer to all sorts of employment rights, but particularly in health and safety.
Michael Fallon: One must be careful about this issue. Nearly 6 million people under the age of 25 in the European Union have no work at all. They deserve some protection too and some rights to help them into the labour market. If they were a member state, by the way, they would be the 17th largest. Youth unemployment across the Mediterranean is now reaching the fairly terrifying proportions of 40% to 50%. I would hope that the hon. Gentleman would join us in ensuring that everything possible is done to help those young people get their first start. I would have thought that that is most likely to be in a new small business that is growing.
It is important that the initiative should not simply embrace our more traditional allies in regulatory matters in the north of Europe. It should also embrace Mediterranean countries that are desperate for further growth and desperate to find employment for their younger people in particular. That is why there ought to be more common ground than there has been on making
it easier for small businesses to employ people, especially younger people. I do not see any danger to the rest of the employment market in that.Kelvin Hopkins: I thank the Minister for his answer, but I would gently suggest that the problems of southern Europe are not to do with deregulation. They are macro-economic problems related to the straitjacket of the euro, which we had the common sense not to join.
The Chair: Can we have questions?
Kelvin Hopkins: Well, my next question is this. I am sure that many members of the Committee would like to see more legislation decided democratically at national parliamentary level, not by the European Union and not launched by the Commission. Will the Minister use his good offices to seek to ensure that the maximum amount of regulatory legislation is decided at the national level through Parliament?
Michael Fallon: There we certainly have some common ground. I hope that the hon. Gentleman will join with us when the balance of competences review is completed, and I hope that there will be a none too partisan approach to the issue. It is possible to look at the acquis and see huge areas of responsibility that would make more sense were they returned to member states and to more democratically based institutions, including this House. I would welcome that, and I hope for common ground on that point.
I must slightly take issue with the hon. Gentleman’s comment on my second reply, when he said that the problem in the Mediterranean countries is simply the euro. I do not accept that. The straitjacket on growth in many such countries is regulation and the cost of employing new staff. We have tackled that in this country—we have a more flexible labour market, thanks not least to some key reforms that were carried out back in the 1980s and continued in the 1990s. We continue to keep our labour market under review and are always looking to ensure that we make it easier for young people to enter it, but in some other member states it is still expensive and bureaucratic for companies to take on new staff. Those member states need to look at what can be done to make that easier, as does Brussels.
The Chair: I call Jacob Rees-Mogg, because I indicated that he would speak next. We will then hear from Brian Binley.
Jacob Rees-Mogg: Thank you, Mrs Brooke. This really is my final question.
Would the Government be able to categorise the proposals issued by the European Commission so that we could understand which ones would make a difference? We might then understand which ones apply to the United Kingdom—not all of them do, because some relate to Schengen, which we are not affected by; which ones are already defunct, because some of them may not have any active effect; and which ones would involve an increase of power for the EU, rather than a decrease. It would then be possible to have a real understanding of how much is genuine deregulation and how much is more political than real.
Michael Fallon: I am happy to attempt that task, but I am not sure that I can do it on my feet in front of the Committee this morning. I would be happy to add a description to the letter that I propose to write to my hon. Friend. It is an important point: if some proposals are not fully withdrawn but left in limbo, businesses will be uncertain about when they could be picked up again by a future Commission—we will have a new Commission by next autumn. That kind of uncertainty may well cause businesses to make any new investments outside the European Union rather than within it.
My hon. Friend therefore makes a valid point. I will certainly come back to him with a fuller categorisation of the different proposals and our view as to which are dead and buried, which are on life support, as I described it earlier, and which have the possibility of being revived at the initiative of a future Commission.
Mr Brian Binley (Northampton South) (Con): I apologise for being late, Mrs Brooke, and thank you for your great kindness in allowing me to ask a question. By habit and by the practice of this place, perhaps that is not the correct way to proceed, but I did check with my hon. Friend the Member for North East Somerset to ensure that a strong element of the Minister’s opening remarks was about us being keen on deregulation and on ensuring that regulations that did not work were removed from the EU’s statute book.
I am concerned, however, about the two opening sentences of paragraph 2.2 on page 52 of the bundle:
“The Commission’s organisational framework for evaluation is decentralised. Individual Directorates General are responsible for the evaluation of their activities and can structure their evaluation functions to reflect the Directorate General’s needs and requirements.”
Those last few words worry me. I hate it when bureaucrats tell us what we must and must not do in a democratic situation. I wonder who monitors the monitors, quite frankly. Will the Minister consider whether passing the responsibility to the individual directorates, which are of varying standards and quality, is a good enough way of dealing with this and whether there is not a need for more of an umbrella overview?
Michael Fallon: My hon. Friend makes a valid point. On his introductory point, the proposals that were withdrawn are wins for UK businesses. The fact that we do not now have to worry about European Union legislation on hairdressers—not a key function of the internal market—or how we sit in our chairs in offices or, indeed, how the soil framework might have been implemented is a bonus. We will not face the extra costs and time for trying to live with the draft proposal and tailor it to our particular needs, as we would if it had had a reasonable prospect of going through. That is welcome.
On my hon. Friend’s point about evaluation, I share his concern about the Commission’s structure and his discomfort at living at the whim of directorates and directorates-general. On the procedures that should be involved before any legislation comes forward, it is important not simply to reflect the COMPETE principles, which are set out in the business taskforce’s report, but that it should be subject to mandatory independent assessment. That is what happens to proposals here, which are subject to full evaluation by the Regulatory Policy Committee, which is independent of Government. It looks at the cost of proposals and examines the case
that the Department makes for withdrawing other legislation to comply with the one-in, two-out rule. That is done completely independently and fearlessly and is included in the statement on new regulation that we publish six-monthly.We need a mandatory impact assessment process, which we do not have at the moment. Directorates-general can come forward with proposals—origin labelling is an example—without carrying out a proper impact assessment. It is also possible for an impact assessment to be ignored in the face of a political decision by the college of Commissioners to go ahead with a proposal.
Before the proposals proceed, we want to ensure that the impact assessment machinery is independent and mandatory, and that compliance with it is mandatory. That would give business and everyone involved in the European legislative machinery confidence that the proposals are sound, and that the costs and benefits have been independently and properly measured.
Nigel Mills (Amber Valley) (Con): I return to an earlier point about two proposals for a tax power grab—own resource based on VAT and the common consolidated corporate tax base. Perhaps the Minister will add me to the list of recipients of his letter. It beggars belief that we can count the idea of producing new own resource based on VAT as an initiative for burden reduction, given that the VAT base across EU nations is slightly different—we have a lot of exemptions and zero ratings that do not exist in various parts of the continent. I suspect that own resource based on VAT would place a huge burden on businesses and consumers in the UK, and a common consolidated corporate tax base would cause a lot of our tax revenue to slide across to nations whose economies are based on large levels of employment and tangible assets. Ours is a knowledge economy with a lot of intellectual property, which is not included in the proposal. It would be better to say that the two proposals are not about reducing burdens. They should be scrapped, and they should not be allowed to be included in an initiative such as this.
Michael Fallon: I certainly share my hon. Friend’s wariness. Tax lies at the heart of sovereignty. It is at the heart of everything we do in this House and our responsibilities to our constituents. We do not want any further fiscal power to be transferred from this House to Brussels. That is one reason why we have stayed out of the new proposals for pooling more fiscal sovereignty in the eurozone and why we have always resisted corporate tax harmonisation. We have to be extremely watchful in this area. We have formally opposed the proposed revision of the VAT-based resource, because it has the potential to be more complex than the current system, it raises issues of sovereignty and accountability and it would move away from this country’s tried and tested system.
In the recent EU own resources decision, the European Council concluded that there would be no change to the existing VAT-based resource. I hope that is of some comfort to my hon. Friend. However, I agree that we must be constantly on guard.
9.34 am
Michael Fallon: I beg to move,
That the Committee takes note of European Union Documents No. 13920/13, a Commission Communication: Regulatory Fitness and Performance (REFIT)—Results and
Next Steps, and No. 13921/13, a Commission Communication: Strengthening the foundations of Smart Regulation—improving evaluation; welcomes the Commission’s commitments to lessening the burden of EU regulation on business and its plans to improve its evaluation procedures; and supports the Government’s efforts to press the Commission for further and faster progress in reducing EU regulatory burdens on business and eliminating barriers to growth [19th Report of Session 2013-14 , HC 83-xviii, Chapters 2 and 3] .The REFIT communication outlines a series of helpful commitments that the Commission has made to reduce the burden of EU regulation. As I have mentioned, the Government have consistently called on the Commission to lighten that burden. I know that Parliament is interested in that, and I hope that the Committee this morning supports that.
We are pleased that the REFIT process both reviews the existing stock of EU legislation and makes specific commitments to withdraw a small number of burdensome proposals. We also welcome the expansion and improvement of the evaluation programme, as set out in both communications. We will be responding formally to the Commission’s consultation on evaluation, taking into account the views of Parliament, business and other stakeholders.
I want to be clear with the Committee this morning that that should just be the beginning. The Commission must be more ambitious here. It has made important commitments, but businesses need to feel that real change is happening on the ground and quickly. That is why I, and the rest of my colleagues in Government, continue to press the Commission for further and faster progress.
First, we want to see rapid progress on the withdrawal, repeal or reform of proposals that have been flagged in REFIT as unnecessarily burdensome. We do not want—this is a point well brought out by my hon. Friend the Member for North East Somerset—the proposals to be left in limbo, continuing to create uncertainty as to whether they may be picked up again in future years by a different Commission.
Secondly, we would like to see REFIT’s actions expanded to include more proposals and laws that businesses here tell us need to be reformed. The Prime Minister’s taskforce identified 30 such European Union rules. The Commission’s REFIT programme, if set alongside it, sets out substantive action on around a third of them. We would like to see the Commission pick up more of the areas identified by the taskforce in its next REFIT communication, at the end of this year.
Thirdly, we want the Commission to deliver on its previous commitments to ensure that all new EU legislation conforms to better regulation principles. That includes exempting micro-businesses entirely unless their inclusion is explicitly justified and proposing lighter regimes for small and medium-sized enterprises where exemption is not possible. We have seen far too few examples of draft proposals that impinge directly on business that carry adaptations for small businesses or exemptions for micro-businesses. We need to see them.
We are working with business organisations and like-minded member states across the European Union to hold the Commission to account on lightening the regulatory burden. I want to assure the Committee that we will continue to work relentlessly to achieve a European Union that supports business. That is crucial to improving competitiveness, creating jobs, and achieving growth right across the European Union.
9.38 am
Toby Perkins: It is a pleasure to serve under your chairmanship, Mrs Brooke. This is the second time in recent weeks that I have had the pleasure of placing on the record our support for moves to achieve, in collaboration with our European partners, measures that will benefit British businesses.
It turns out, based on the Minister’s remarks, that it has been a good week for hairdressers, which is something we can all celebrate.
Increasingly, the alarmist and isolationist voices that would decry the value that British firms gain in being part of the world’s largest trading bloc are undermined by the real-life experiences of British firms that recognise the importance of collaboration. The evaluate principle being adopted under the REFIT programme demonstrates how Britain can benefit from our membership of the single, most deregulatory measure in our history, which is the ability to work and trade freely across 27 countries in one market.
The issue of policing regulations was raised by the Minister. I understand entirely where he is coming from: this country has always been at the forefront of adopting European regulations, but sometimes there has been frustration that they are not being taken through on a regulatory basis with the same enthusiasm by our European counterparts. However, businesses are concerned about whether, having implemented the regulations, we actually police them to ensure that foreign companies looking to supply into UK markets are compliant. It is all right to have it on the statute book, but do we actually have anything in place to ensure that products coming into the UK comply with the regulations? I will mention a couple of examples shortly.
The Minister also referred to the importance of recognising the role of SMEs. He spoke of a thirst to exempt micro-businesses from more and more such regulations. I have had my own business on a couple of occasions, so I know how difficult it can be to recruit in a competitive marketplace featuring larger firms. It is important that we strike a balance and do not end up seeing small businesses as second-class workplaces, and that we do not end up with people thinking that they are less likely to have the protection of the law if they are shopping with a small business as opposed to a large business. With all such things, it is absolutely crucial that we strike the right balance.
Mr Binley: While I recognise the hon. Gentleman’s point that we do no want to turn micro-businesses, which tend to be, but are not always, one-man businesses, into second-class employers, the burden that falls on a small business or micro-business is reckoned to be up to 30 times greater than for a big corporate with all its facilities. I ask the shadow Minister to take that into account.
Toby Perkins: That is precisely the balance that I am trying to ensure is struck between recognising the pressures on small businesses in terms of both consumer rights and employee rights and recognising that we do not want unintended consequences.
The Minister mentioned young people’s right to work, and it almost sounded for a moment as though he was going to support Labour’s jobs guarantee. He is right,
however, that we need to recognise the importance and terrible future cost of the level of youth unemployment in this country and across Europe, which is right at the forefront of Labour’s approach to the jobs guarantee for young people and is why we were so desperately disappointed that one of the first measures that this Government introduced was to get rid of the future jobs fund, which might have reduced youth unemployment to below its current level.Returning to regulatory reform, Labour’s approach will be to continue to secure, through collaboration with our European counterparts, evidence-based, proportionate and smart regulation. As the party of small business, it will not surprise you, Mrs Brooke, or anyone else to know that Labour absolutely recognises the importance of bearing in mind the impact on small businesses. The REFIT work is an important symbolic step, but it also offers optimism about important practical differences for businesses across Europe.
It is telling that the measures that we are debating today and that were recently debated to reduce the financial reporting requirements from Europe on small firms, which is a really positive step, will have a far more substantial impact on businesses than anything that is contained in the draft Deregulation Bill. The measures offer real support.
The Minister mentioned the impact assessment, which was interesting given that the Government were debating just yesterday whether to make massive changes to further education without ever producing an impact assessment. I hope that his zeal for ensuring that we get impact assessments from Europe will also extend to his colleagues so that we start getting them in this Parliament. He is right, however, to say that we need to ensure that the impact assessment is carried out and publicised.
The fact that some of these are new regulations that will make life easier for businesses exposes an intellectual inadequacy. Simplistic and tokenistic “one in, one out” approaches—or “one in, two out” approaches—lead to armies of civil servants searching the books for arcane pieces of legislation to abolish, and fail the Minister’s test of making a real difference to businesses on the ground. We need to see regulation and deregulation that is relevant and changes what businesses have to do.
The Minister asked me about specific cases. He was previously incredulous to learn that leading players in the crowdsourced funding space were keen to have their fledgling industry protected through regulation, in recognition of the damage that can be suffered if irresponsible new entrants to the market undermine confidence in the industry. I recently met representatives from the Bathroom Manufacturers Association and the weighing machine industry, and they talked about how insufficient policing and inadequate regulation meant that good quality British companies were being undercut by overseas companies that knew the regulations were not being policed or were less stringent here.
Jacob Rees-Mogg: I am grateful to the hon. Gentleman for giving way, because he is making an interesting point. If I may throw in a caveat, established businesses are often keen on regulation because it protects their market position and reduces competition.
Toby Perkins: That is an entirely legitimate point. I am simply making the point that the simplistic view that all regulation is bad and that all business wants is to be deregulated and allowed to get on with it does not stand up to scrutiny. In all these things, there is a need for balance, but that does not undermine the hon. Gentleman’s point in any way.
The weighing machine manufacturers made the point that they were finding it much easier to get business in markets that have more stringent regulations, such as France and Germany. In the UK, foreign imports were undercutting them, because the regulations were not there in the same way. It is important to have a balanced view on regulation.
As we set about the task of reshaping the economy and recovering from the world’s largest ever global crash, we need more correct collaboration—and, yes, more deregulation where possible—but we also need more policing of the existing regulation, an evidence-based approach and support for the institutions, such as trading standards, that support Britain’s role as a major and influential player in the world’s largest trading bloc.
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Jacob Rees-Mogg: The need for deregulation is shown by the thought that this Committee sitting breaches the working time directive. We were not allowed our full 11 hours between the rise of the House last night at a little after 10 o’clock and the start of our meeting this morning at a little before 9 o’clock. Fortunately, Members of the House of Commons are exempt from the working time directive, because these are parliamentary proceedings. Arguably, there is an interesting constitutional clash between the European Communities Act 1972 and the Bill of Rights of 1689. Perhaps the European Commission will bring an infraction proceeding against us to see whether this meeting should be held. Then we can decide whether we are allowed to hold Committees of the House of Commons according to our traditional practice.
I threw that in because it shows the urgency and importance of what the Minister is doing, and I have the greatest confidence in him. The Government are lucky to be represented by him. He has, in all that he has said and done, shown that he believes in free markets and in ensuring that there is effective competition and the effective opportunity for businesses to do what they want.
To that extent, I welcome the Government’s motion, which understands both the need to push this matter further and the welcome little steps being made by the European Commission in this direction, although one slightly feels that the Commission is the child that has reached the age of two and has only yet crawled. It is beginning, very faintly and rather late in its early life, to make these steps towards what we want to see. I do not think that it is yet anywhere near to the thoroughgoing, comprehensive review of regulation that we would welcome. The programme is a lot of showmanship. That is encouraging, because once people begin to believe that deregulation is a good thing and that there are good politics to be had from deregulating, it begins to change the intellectual climate within the European Commission and the whole approach to whether more regulation will work, be popular, or allow the European Union to continue as it is currently constructed.
So this little bit of showmanship is welcome, but if all this is so that one’s barber can wear high heels, it really is not quite sufficient. I must confess that Mr James of Truefitt and Hill will be rather surprised when I see him and say that he can cut my hair wearing high heels; as far as I am aware, it is something that he has never wished to do. So we need to go much further in this effort. The European Commission needs to take it more seriously. I so agreed with the points made by my hon. Friend the Member for Amber Valley about how ridiculous it is that a big push for more powers for the European Commission on taxation is included in a deregulatory propaganda paper. There is much further to go.
I would add one further thought. The competitive landscape between countries is in part determined by the regulatory position that they set out for their companies. In creating a single market, it is not necessary or even beneficial to have uniform regulation. That can simply reduce the competitive effort of innovative businesses who think of a new way of doing things and do not need to be hidebound by regulation. There is also competition between states. Our nation’s future economic growth will depend not on whether there is a level playing field where everything remains stable within Europe, but on whether we are the most competitive nation in the world.
Part of that is regulation, so it ought to be a national, rather than a supranational, competence for domestic activity. The need for supranational regulation is simply for matters of trade. If the Minister can bring it back to that, then, if we were in ancient Rome, he would deserve to be given a triumph and to be lauded through the streets. That must be the target for Her Majesty’s Government and for my right hon. Friend.
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Kelvin Hopkins: I have a slightly different perspective on economics, the world and how we live our lives than has been expressed so far. I want to say a few positive things about regulation. While I accept that unnecessary regulation should be got rid of, regulation is a positive word for me, not a negative word. I will use one simple example.
Some 30 years ago, I had some structural alterations made to my home. The builder did something which I thought was extremely dangerous and clearly not safe. I called in the building inspector from the local authority, who made the builder do it again. That was a burden on the builder, but it made my house safe and made me happier. That is a very good example of some regulation which we ought to preserve and, I suggest, reinforce.
Mr Binley: Would it not have been sensible in that case for the hon. Gentleman to have thought more clearly about the type of builder he had? Is that not the very essence of competition that we are extolling?
Kelvin Hopkins: I am not a builder myself, but I did have a number of estimates, ranging in a ratio of 10:1 between the cheapest and the most expensive. I went in the middle. He seemed to be a reasonable chap and he did not do it well. My hon. Friend the Member for Chesterfield talked about making sure that there is a level playing field in the sense of between different nations. However, where workers were concerned, in
one case in particular, the Viking Line case, cheap labour was employed to replace more expensive labour from one of the Scandinavian countries. It broke European Union regulations on employment, but the European Court of Justice threw out the workers’ case and found in favour of the employers doing what they wanted to do.If deregulation means that employers are allowed to squeeze the living standards of workers and get rid of health and safety to make sure that more profit can be made—in a sense to promote growth in the economy— I do not think that this is the sort of deregulation that I want. I hope that when we look at deregulation we will look at the pros and the cons and not assume that all regulation is a burden and red tape and therefore a bad thing.
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Michael Fallon: I will first respond to the hon. Member for Chesterfield. I congratulate him on not falling into the trap of suggesting that hairdressers should be excluded from recognition in our society. Hairdressing is an important business sector and has a good record of employing young people. There is no reason why hairdressers should not be recognised alongside anybody else.
On compliance, the hon. Gentleman returned to the issue that we discussed in short measure a little earlier. It is for the Commission to instigate infraction procedures, but the hon. Gentleman is right to give me the opportunity to make it clear that it is open to anybody else to lay evidence before the Commission, if they feel that other companies are abusing European Union requirements when they bring their products into this country to compete against our firms. I repeat, if the hon. Gentleman has evidence or examples of that we would be happy to take them forward.
The hon. Gentleman suggested—there is perhaps a difference here—that this was a question of balance. The hon. Member for Luton North made the point that one has to balance necessary regulation against the importance of encouraging growth and fostering innovation and competitiveness, as my hon. Friend the Member for North East Somerset suggested. I am afraid that Labour Members do not accept that the balance is wrong and this lies behind their approach. We think that the balance is wrong and that we need to remove more regulation that is constricting growth and innovation, particularly among our smaller companies. We want those companies to grow and employ more people. That is one reason why we got rid of the future jobs fund, which was far too concentrated on the public sector. The private sector is creating the jobs of the future. The better route to dealing with the appalling legacy of youth unemployment that we inherited in 2010 is to support private companies in their growth, to reform the benefit system and to encourage apprenticeships at all levels.
This newfound enthusiasm for small and medium-sized enterprises on the part of the Labour party would be better advanced if Labour Members were able to come forward with some serious proposals for deregulation to join us. The business taskforce has set out 30 proposals, 30 pieces of European legislation, that it says business needs to do without. It would be nice to hear of one from the Labour party. Let us hear at least one example
of a piece of European legislation or a proposal that Labour would get rid of. If they are not prepared to do this, I do not think they can reasonably pose as champions of small and medium-sized enterprises.The hon. Gentleman asked about impact assessments. I have already said that I want to see those mandatory, so that every European proposal goes through them, and I want to see them more independent. At the moment, they are conducted by Commission officials. I think there is a very good case for making them independent.
Finally, the hon. Gentleman was rather sniffy about our “one in, two out” principle. He implied that this was simply encouraging officials in Whitehall Departments to dig around and find pieces of ancient 19th-century legislation to get rid of to match new proposals. That shows that he does not understand the “one in, two out” principle, which is not taking two pieces of legislation and getting rid of them in return for putting forward a new piece of legislation; it is looking at the cost. It is taking out twice the cost of any new piece of legislation—twice the cost of existing legislation. That cost and those benefits, each side of the ledger, are properly and independently verified by the Regulatory Policy Committee. That work has so far yielded £1 billion of savings to British business annually. Every single year that saving is repeated. That is where we have got to so far under “one in, one out” and now under “one in, two out”.
Toby Perkins: I have to tell the Minister that as we go across the country consulting on this, we find that the sentiments he articulates today are not shared by businesses out there. They do not get the sense that the regulatory framework has got a great deal easier under the Government. In fact the pitifully weak draft Deregulation Bill makes it clear that the Government have found it much more difficult to live up to their speeches in opposition about making it easier for business on the ground. A little more modesty from the Minister might be appreciated by businesses which feel that the regulatory framework has not got a great deal easier under this Government.
Michael Fallon: Well, we all talk to small businesses in our constituencies all the time. I am very well aware, and the hon. Gentleman makes a fair point, of the scepticism of some small businesses about the repeated claims of successive Governments that they are trying to reduce the burden of red tape. Our reductions in that burden are being measured all the time, week by week, by the Regulatory Policy Committee. Those results are published. They are there for everybody to see and those costs, which are coming down, are assessed and verified properly. Overall the burden is being reduced. The hon. Gentleman would be on stronger ground if he came forward with some proposals of his own to reduce the regulatory burden. It is no use posing as the friends of small business without some proposals to clear away some of the burden of unnecessary legislation.
My hon. Friend the Member for North East Somerset drew our attention, and perhaps the House authorities’ attention, to the implications of the working time directive. He made the point in a fairly light-hearted manner but it is an important point. The working time directive, as I understand it, has done great damage to some of our
other public services, not least the national health service, which has had to absorb huge additional costs in complying with it. It is one of those directives on which we are very keenly focused as to the potential for improvement.On corporation tax, my hon. Friend gives me the opportunity to reply to a point that was made earlier about the proposal for a common consolidated corporate tax base. We think an optional system that is being proposed would be burdensome for tax authorities to administer and would create new tax planning opportunities because companies would then inevitably start to select the system under which their liability was less. So the benefits of that proposal are very unclear. With the impact assessment itself suggesting that it would have a negative impact on investment, on employment and on GDP at the EU level, we had serious concerns about the proposal. Indeed, we doubt whether it adheres to the principle of subsidiarity.
My hon. Friend also suggested—here, I am absolutely with him—that our approach to regulation and legislation has to allow space for what he called competition between member states and different companies in member states and what I would call competition by every nation. That space between what is compulsory and what is forbidden is essential for our SMEs to exploit through innovation and by seeking new opportunities. That is extremely important work.
Finally, my hon. Friend suggested that we had only just made a start. I think he referred to a two-year-old not yet being able to walk. I wholly accept that. We are turning round in Brussels a culture of regulation, a culture of continually looking for more things to harmonise, to make compulsory and so on. There are some encouraging signs. Member states who have not previously been involved in supporting this work have now rallied to our banner. Italy, for example, has joined the northern states that originally supported our action plan. There is more evidence that the importance of this work is accepted and given more attention, both by the President of the Commission and throughout the various directorates-general. We have to keep up the pressure. That is in the interests of our country but also in the interests of the competitiveness of the European Union as a whole.
I will finally resist my hon. Friend’s temptation to foresee an award of any particular triumph. As I recall from my studies of the classics, triumphs involved the parading of captives from one’s campaigns through the streets of Rome. As my hon. Friend was speaking, I was conjuring up the picture of President Barroso and various directors from the Commission being led in chains across the Capitol of Rome. As I have been urged to be a little more humble, I will resist that temptation.
We have made a start, as I want to assure the Committee. In the REFIT programme, the alignment with some of the proposals put forward by the taskforce and in the evaluation proposals that match some of our positions in seeing more independent evaluation, we see early and encouraging signs that the Commission is finally beginning to get the picture.
That the Committee takes note of European Union Documents No. 13920/13, a Commission Communication: Regulatory Fitness and Performance (REFIT)—Results and Next Steps, and No. 13921/ 13,
a Commission Communication: Strengthening the foundations of Smart Regulation—improving evaluation; welcomes the Commission's commitments to lessening the burden of EU regulation on business and its plans to improve its evaluation procedures; and supports the Government's efforts to press the Commission for further and faster progress in reducing EU regulatory burdens on business and eliminating barriers to growth [19th Report of Session 2013-14, HC 83-xviii, Chapters 2 and 3].