1 Undeclared work
| (35967)
9008/14
+ ADDs 1-2
COM(14) 221
| Draft Decision on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work
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| Legal base | Article 153(2)(a) TFEU; co-decision; QMV
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| Document originated | 9 April 2014
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| Deposited in Parliament | 17 April 2014
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| Department | Business, Innovation and Skills
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| Basis of consideration | EM of 30 April 2014
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| Previous Committee Report | None
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| Discussion in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested; for debate on the floor of the House on a Reasoned Opinion before 9 June 2014
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Background
1.1 The Commission defines undeclared work as "any
paid activities that are lawful as regards their nature but not
declared to public authorities, taking account of differences
in the regulatory systems of Member States".[1]
Undeclared work forms part of the informal or "shadow"
economy and encompasses a number of different situations, including:
- the procurement or provision of services or the
supply of goods by individuals whose activities and income are
not declared;
- under-declared work where only part of an individual's
wage or salary is paid officially, with the rest paid in the form
of a "back hander"; and
- mis-use of the status of a self-employed worker
in order to avoid or mitigate the application of labour laws or
payment of taxes and social security contributions.
1.2 All forms of undeclared work reduce the tax base
and diminish public revenue derived from income taxes and social
security contributions. In addition, undeclared work is often
equated with precarious forms of employment, poor or unsafe working
conditions, and unfair competition. In some cases, undeclared
work may be undertaken at the same time as claiming unemployment
or social security benefits.
1.3 The prevalence of undeclared work is difficult
to measure, not least because Member States define and tackle
the problem differently and there is a lack of reliable and comparable
data. The sectors most frequently associated with undeclared
work include construction, domestic or industrial cleaning services,
childcare and care of the elderly, personal services, private
security, agriculture, and the catering industry.[2]
The larger the shadow economy, the less likely the EU and Member
States are to achieve the target of a 75% employment rate for
those aged between 20-64 set out in the EU's Europe 2020 Strategy.
The Commission believes that high levels of undeclared work will
also affect other EU policy priorities, notably the drive towards
fiscal consolidation, the creation of good quality and sustainable
jobs, and the proper application of EU and national employment,
labour, health and safety, and social security laws. Moreover,
the Commission suggests that:
"Fighting undeclared work related to
cross-border mobility is essential to maintain the credibility
of the fundamental right to free movement."[3]
1.4 The Commission's 2012 Communication, Towards
a job-rich recovery, highlighted the need to transform undeclared
work into regular employment and called for improved cooperation
between Member States. It said it would initiate a consultation
on establishing "an EU-level platform between labour inspectorates
and other enforcement bodies to combat undeclared work" which
would share best practice and identify common principles for inspections.[4]
In addition, the EU's Employment Guidelines (which are intended
to guide Member States' employment policies) urge Member States
to "tackle labour market segmentation with measures addressing
precarious employment, underemployment and undeclared work".[5]
The Commission's Annual Growth Survey for 2014 similarly views
action to combat undeclared work as an important component of
job creation measures.[6]
The draft Council Decision
1.5 Following consultation of Member States, EU social
partners (representatives of business and trade unions), as well
as the publication of various studies and Eurobarometer opinion
surveys, the Commission has proposed a draft Decision establishing
an EU "Platform" to enhance cooperation in preventing
and deterring undeclared work. The Commission recognises that
Member States have the primary responsibility for tackling undeclared
work, but considers that more structured cooperation would reduce
incentives for employers to use, and workers to engage in, undeclared
work. It suggests that existing cooperation between national
authorities operates on a piecemeal basis, with a variety of EU
committees — such as the Senior Labour Inspectors Committee,
the Administrative Commission on social security coordination,
the Committee of Experts on the Posting of Workers, and the Employment
and Social Protection Committees — dealing with aspects
of undeclared work on an ad hoc basis.
1.6 The draft Decision would provide a formal mechanism
at EU level dedicated to strengthening cross-border cooperation
on undeclared work. The proposed EU Platform would comprise national
enforcement authorities designated by each Member State, the Commission,
and observers representing EU social partners, the European Foundation
for the Improvement of Living and Working Conditions, the European
Agency for Safety and Health at Work, the International Labour
Organisation, and EEA States (Iceland, Norway and Liechtenstein).
1.7 The EU Platform would have three objectives:
· improving cooperation between Member States'
different enforcement authorities at EU level to prevent and deter
undeclared work more effectively and efficiently;
· strengthening the technical capacity of
Member States' enforcement authorities to tackle cross-border
aspects of undeclared work; and
· increasing public awareness of the need
for action and encouraging Member States to intensify their efforts
to tackle undeclared work.
1.8 It would seek to achieve these objectives through
the exchange of information and best practice, the development
of expertise and analysis, and the coordination of cross-border
operational action. The draft Decision identifies a series of
tasks to be undertaken by the Platform. These include:
· the development of common concepts and
measurement tools;
· the creation of a "knowledge bank"
of different practices used to deter and prevent undeclared work;
· the adoption of non-binding guidelines
for inspectors, the publication of good practice handbooks, and
the development of common principles for inspections;
· the enhancement of Member States' technical
capacity to tackle cross-border aspects of undeclared work and
the adoption of a common framework for joint inspection operations
and for the exchange of staff;
· improved data sharing;
· the development of a permanent training
capacity for enforcement authorities and the adoption of a common
framework for joint training;
· the introduction of a system of peer review
and support for the implementation of country-specific recommendations
(issued as part of the European Semester) concerning undeclared
work; and
· the adoption of EU-wide or regional strategies
(including at sectoral level) and campaigns to raise awareness
of the problems associated with undeclared work.
1.9 Participation in the EU Platform would be mandatory
for all Member States. Each would be required to designate a
single point of contact to participate in the Platform who would
liaise with all national enforcement authorities responsible for
tackling undeclared work (for example, labour inspectorates, social
security or tax authorities, employment services and migration
authorities). The Platform would adopt two-year work programmes
and cooperate with other relevant EU level expert groups and committees.
It would be funded by the EU Programme for Employment and Social
Innovation, with the Commission anticipating commitments of around
€10.6 million for the period 2014-20.
The legal base for EU action
1.10 The main objectives of the EU Platform are to
promote employment and improve working conditions by supporting
Member States' efforts to prevent and deter undeclared work.[7]
These goals are reflected in Article 151 of the Treaty on the
Functioning of the European Union (TFEU), which describes the
EU's social policy objectives, and in Article 153(1), which sets
out the areas of activity in which the EU has competence to "support
and complement" action taken by Member States. The Commission
highlights, in particular, EU competence in relation to working
conditions, the integration of individuals excluded from the labour
market, and measures to combat social exclusion.
1.11 The legal base for the draft Decision is Article
153(2)(a) TFEU. It provides for the adoption of measures "designed
to encourage cooperation between Member States through initiatives
aimed at improving knowledge, developing exchanges of information
and best practices, promoting innovative approaches and evaluating
experiences, excluding any harmonisation of the laws and regulations
of the Member States". Action based on Article 153(2)(a)
must concern the social policy objectives described in Article
151 TFEU as well as one or more of the specific fields of activity
set out in Article 153(1) TFEU.
The justification for EU action and compliance
with the subsidiarity principle
1.12 The Commission describes existing cooperation
at EU level as "patchy" as there is no mechanism to
require Member States to take part in multilateral cooperation
projects to tackle undeclared work. It considers that the creation
of an EU Platform requiring the mandatory participation of all
relevant national enforcement authorities would make existing
enforcement efforts more effective and efficient and add "significant
value over and above what Member States would be able to achieve
on their own".[8]
In particular:
"As the challenges are common to Member States,
and as undeclared work often has a cross-border dimension, EU
level action can play an important role by reinforcing cooperation
between enforcement authorities within and between different Member
States in the prevention and deterrence of undeclared work."[9]
1.13 The Commission suggests that national enforcement
bodies in many Member States encounter difficulties when seeking
to identify or sanction cases of undeclared work which have a
cross-border dimension, not least because some (for example, labour
inspectorates or tax authorities) have no forum in which to meet
and exchange information at EU level. The creation of an EU Platform
would not only facilitate communication and cooperation in a cross-border
context, but would also demonstrate a shared political commitment
to tacking undeclared work.
1.14 The Commission considers that the draft Decision
complies with the principle of proportionality on the grounds
that it is "designed to encourage cooperation between Member
States without any harmonisation" of their laws.[10]
The Government's view
1.15 The Minister for Employment Relations and Consumer
Affairs (Jenny Willott) says that the Government takes seriously
the issue of undeclared work, particularly in relation to tax
evasion and benefit fraud, and outlines the following measures
it has put in place to tackle the problem:
· action to enforce the statutory rights
of all workers who are legally entitled to work in the UK, including
through enforcement of the national minimum wage and support for
the role of the Gangmasters Licensing Authority in preventing
the exploitation of workers in the agricultural and horticultural
sector;
· the creation of specialist teams within
Her Majesty's Revenue and Customs (HMRC) to identify and tackle
those operating within the hidden economy, including through collaborative
work with other enforcement agencies;
· the implementation of the Government's
strategy to tackle fraud and error in the tax credit and benefits
systems and the creation of the Fraud, Error and Debt Taskforce
to provide strategic oversight
and direction of cross-government fraud, error, debt and grant
initiatives; and
· the strengthening of sanctions for employers
who take on illegal workers and the entry into force, in May 2014,
of measures to "prevent illegal migrants from accessing and
abusing public services and [to] reform the removals and appeals
system — making it simpler to remove those with no right
to be in the UK; and [to] end the abuse of Article 8 — the
right to respect for private and family life. Parallel changes
to secondary legislation will also double the maximum penalty
for employing an illegal worker to £20,000 and strengthen
the civil penalty scheme as a whole, including by simplifying
the checks employers must perform."[11]
1.16 The Minister adds that the Government is already
involved in collaborative measures on benefit fraud and is willing
to share its expertise and analysis, but questions what benefits
would accrue to the UK from its participation in the proposed
EU Platform or what the UK would be required to contribute. She
explains that the Government:
"is not yet persuaded that Article 153
provides a sound legal basis for a mandatory requirement for Member
States to participate in a Platform. "[12]
1.17 Nor is the Government persuaded that the draft
Decision respects the principle of subsidiarity on the grounds
that participation should be on a voluntary rather than a mandatory
basis. The Minister notes that the UK already takes part in a
number of voluntary initiatives involving Member States, including:
"the Mutual Learning Programme, ICENUW
(Implementing Cooperation in a European Network against Undeclared
Work), and CIBELES (Convergence of Inspectorates building a European
Level Enforcement System). The H5NCP project, a working party
of the Administrative Commission for the Coordination of Social
Security Systems, made up of anti-fraud policy specialists from
Member States, provides an electronic forum to exchange information
and good practice on combating social security fraud between Member
States."[13]
1.18 The Minister intends to raise the Government's
competence and subsidiarity concerns during the course of negotiations.
She also questions the proportionality of the approach proposed
by the Commission in light of the OECD's Employment Outlook 2005
which estimated that the informal economy within the UK only accounts
for 1.7% of GDP, one of the lowest levels amongst the countries
sampled.
1.19 The Minister refers us to the document accompanying
the draft Decision (ADD 2) which summarises the Commission's Impact
Assessment and includes the following observations:
"The initiative under discussion concerns
governance issues. Overall good governance is expected to have
an impact on the social situation and the economic performance.
However, the incidence chain from the establishment of a platform
against undeclared work to reduced undeclared work is rather long.
It was impossible to establish a sufficiently direct link between
the functioning of a platform, the reduction of undeclared work
and economic performance or social wellbeing. The difficult measurability
of undeclared work makes this particularly difficult. Therefore,
the analysis limits itself to the question to what extent the
different options achieve the specific objectives. Furthermore,
the costs directly linked to the establishment of such a platform
are described. As the objectives were defined in such a way as
to support socio-economic wellbeing, the most effective and economic
achievement of the objectives is considered as the best alternative
from a socioeconomic perspective."[14]
1.20 The Minister concludes from this that the Commission's
proposals:
"lack the empirical evidence base or
analysis of structural failure at Member State or Union level
which would support a case for intervention."[15]
Conclusion
1.21 The Minister's Explanatory Memorandum raises
three concerns:
· whether the EU is competent to act
on the basis of Article 153 TFEU;
· whether the action proposed is consistent
with the principle of subsidiarity; and
· whether the action proposed is proportionate
to the objectives which the draft Decision seeks to achieve.
1.22 These concerns relate to the justification
for the Commission's proposal and, in particular, the mandatory
participation of all Member States in the EU Platform.
1.23 Turning first to the legal base proposed
by the Commission, we consider that there is a sufficient connection
between the action proposed to prevent and deter undeclared work
and the objectives and activities set out in Articles 151 and
153(1) relating to employment, working conditions, the integration
of individuals excluded from the labour market, and measures to
combat social exclusion. We note, however, that the specific
legal base proposed by the Commission — Article 153(2)(a)
— provides for the adoption of measures "designed
to encourage cooperation between Member States". We
ask the Minister for a more detailed legal analysis of the scope
of this provision and the extent to which it may be used to require,
rather than merely to encourage or promote, certain forms of cooperation.
1.24 We share the Government's concern that a
mandatory requirement to participate in the proposed EU Platform
would breach the principle of subsidiarity. In its explanatory
memorandum accompanying the draft Decision, the Commission describes
existing cooperation at EU level as "patchy both in terms
of the Member States involved and the issues covered".[16]
It suggests that limited participation by Member States in existing
voluntary multilateral projects to tackle undeclared work reflects
differing degrees of political commitment to addressing the problem
and results in "less efficient and effective interventions".[17]
1.25 In our view, the evidence provided by the
Commission does not make a compelling case for an EU Platform.
In particular, we consider that there are insufficient quantitative
data to establish that the Platform would achieve the objectives
set out in Article 2 of the draft Decision, which are to contribute
to:
"better enforcement of EU and national
law, to the reduction of undeclared work and the emergence of
formal jobs, hence avoiding the deterioration of quality of work,
and to promote integration in the labour market and social inclusion."
1.26 Indeed, the Commission itself acknowledges
the absence of a clear "incidence chain" linking the
establishment of the Platform to a reduction in undeclared
work, greater social well-being and better economic outcomes.[18]
It also recognises that an approach based on compulsion may not
be the most effective way of securing effective cooperation and
may constrain the type of activities that Member States are willing
to undertake.[19]
In light of these concerns, it is difficult to see how an EU
Platform requiring mandatory participation can be considered a
necessary means of tackling undeclared work, or how it would produce
more efficient and effective interventions than existing forms
of cross-border cooperation. It is not surprising that Member
States have expressed a clear preference for a voluntary approach.[20]
Accordingly, we recommend that the House send a Reasoned Opinion
to the Presidents of the EU Institutions before 9 June 2014, following
a debate on the floor of the House.
1.27 Furthermore, we note that the Commission's
explanatory memorandum accompanying the draft Decision envisages
EU action playing an important role in "reinforcing cooperation
between enforcement authorities within and between different
Member States in the prevention and deterrence of undeclared work"
(our emphasis).[21]
It says that, in some cases, cooperation between different enforcement
bodies within a single Member State "is not as structured
or effective as necessary".[22]
The Commission's Impact Assessment also makes clear that governance
structures within some Member States are a significant source
of concern:
"Even though social and employment
policy and therefore the issue of undeclared work are primarily
a competence of each Member State, an integrated Europe with some
Member States not having a well-functioning governance system
is not desirable."[23]
1.28 Article 2(a) of the draft Decision refers
only to improving cooperation "between Member States' different
enforcement authorities at EU level". If, however, internal
coordination structures within Member States were to be
included within the scope of the draft Decision, we consider that
this would be a further reason to object to the draft Decision
on subsidiarity grounds. We invite the Commission to explain
whether the scope of the draft Decision, as defined in Article
2, is sufficiently precise to preclude a broader interpretation
encompassing internal governance structures.
- Finally, we note that the Minister cites in
her Explanatory Memorandum estimates contained in the OECD's Employment
Outlook for 2005 which indicate that the informal or shadow economy
in the UK is relatively small. These estimates precede the economic
and financial crisis and, if accurate in 2005, are unlikely to
be so now. More recent data reproduced in the Commission's Impact
Assessment, while hedged with numerous caveats, reveal a different
picture in the UK and across the EU as a whole.[24]
We ask the Minister to provide a more up-to-date assessment
of the size of the UK's shadow economy, as well as her view on
the accuracy of the Commission's data concerning the scale of
undeclared work across the EU, and the significance of any cross-border
aspects, as this, too, will be a key factor in determining the
need for, and proportionality of, EU action. Meanwhile, the draft
Decision remains under scrutiny.
1 (29042) 14369/07; Commission Communication on Stepping
up the fight against undeclared work. Back
2
See p.4 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
3
See p.24 of ADD 1. Back
4
9309/12, (33856); HC 86-vi (2012-13), chapter 13 (27 June 2012). Back
5
See Council Decision 2010/707/EU establishing Guidelines for the
employment policies of the Member States, OJ No. L 308, 24.11.2010.
Back
6
15803/13 (35532); HC 83-xxiv (2013-14), chapter 3 (11 December
2013). Back
7
See p.8 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
8
See p.24 of ADD 1. Back
9
See p.4 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
10
See p.9 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
11
See para 16 of the Minister's Explanatory Memorandum. Back
12
See para 10 of the Minister's Explanatory Memorandum. Back
13
See para 13 of the Minister's Explanatory Memorandum. Back
14
See p.9 of ADD 2. ADD 2 is a summary of the Commission's full
Impact Assessment (ADD 1). A fuller explanation of the Commission's
analysis can be found on p.32 of ADD 1. Back
15
See para 23 of the Minister's Explanatory Memorandum. Back
16
See p.4 of the Commission's explanatory memorandum. Back
17
See pp.20-22 of ADD 1. Back
18
See p.32 of ADD 1. Back
19
See pp.38 and 39 of ADD 1 which sets out the Commission's overall
assessment of establishing a Platform with mandatory membership.
Back
20
See pp.6 and 35-39 of ADD 1. Back
21
See p.4 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
22
See p.3 of the Commission's explanatory memorandum accompanying
the draft Decision. Back
23
See p.10 of ADD 1. Back
24
See Annex II of ADD 1, pp.47-50. Back
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