House of Commons - The future of the European Union: UK Government policy

The future of the European Union: UK Government policy - Foreign Affairs Committee Contents

1 Introduction

Our inquiry

1. In December 2011, the European Council (of EU Heads of State or Government) met to consider the next steps in the EU's response to the Eurozone crisis. Possible steps included amending the EU Treaties to provide for closer EU surveillance and sanctioning of Eurozone states' fiscal and economic policies. EU Treaty change requires unanimity among the 27 EU Member States.[1] The Prime Minister, the Rt Hon David Cameron MP, put forward proposals which he made his condition for agreeing to EU Treaty change. Other Member States declined to agree to Mr Cameron's proposals, so EU Treaty change became impossible. After the failure to agree on EU Treaty change, 25 Member States signed a new treaty (commonly known as the 'fiscal compact' treaty), outside the EU Treaty framework, to institute the provisions which had been proposed for the EU Treaties.[2] December 2011 marked the first time since the country joined the then-European Economic Community (EEC) 40 years ago that the UK Government proved willing to end a potential EEC/EC/EU Treaty amendment process.[3] It was also the first time that some Member States reached agreement outside the EU legal framework to integrate further in a policy area which was already part of the EU's core business. We felt that the December 2011 European Council might mark a defining moment in the UK's EU policy and place in the EU. We therefore decided that the matter required our scrutiny, in part to try to determine the significance of the events. We questioned the Foreign Secretary, the Rt Hon William Hague MP, about the December meeting at one of our regular evidence sessions with him in March 2012,[4] and launched our inquiry shortly afterwards.[5]

2. We took oral evidence on four occasions in total. We held three sessions in 2012, either side of the summer recess. In July, we heard, first, from Sir Howard Davies, Professor of Practice at the Paris Institute of Political Studies (Sciences Po), and former Director of the London School of Economics (LSE), Chairman of the Financial Services Authority, Deputy Governor of the Bank of England and Director-General of the Confederation of British Industry (CBI). Later that month, we took evidence from Charles Grant, Director of the Centre for European Reform; Mats Persson, Director of Open Europe; and Michiel van Hulten, a Dutch former EU official and MEP and now an independent Brussels-based consultant. In September, we took evidence from Professor Patrick Minford, Professor of Applied Economics at Cardiff Business School.

3. During autumn 2012, we made two overseas visits to gather further information. In late October, we visited Berlin and (in two groups) Oslo and Berne; and in late November we visited Brussels and Paris. We provide a list of our meetings on these visits as Annexes 6 and 7. We also held a number of relevant informal meetings in London during our inquiry.

4. We received 42 written submissions, from a wide range of politicians, former EU officials, former UK diplomats, interested organisations, academics and think-tank specialists. We would like to thank all those who provided evidence, spoke to us in connection with our inquiry or otherwise assisted us, and especially the UK's Ambassadors to Berlin, Berne, Oslo and Paris and Permanent Representative to the EU and their teams for facilitating our visits.

Inquiry terms of reference, scope and timing

5. When we launched our inquiry, in March 2012, we were interested primarily in the longer-term political and institutional implications for the UK in the EU of the December 2011 European Council and the conclusion of the 'fiscal compact' treaty. In our terms of reference, we invited evidence which addressed the following questions in particular:

To what extent should the December 2011 European Council and its outcome be seen as a watershed in the UK's EU policy and place in the Union?

Between now and 2020, what institutional architecture and membership should the UK seek for the EU? Should the UK embrace a formalised two (or more)-tier EU and start to develop ideas for multiple forms of EU membership?

What is the relationship between the new 'fiscal compact' treaty and the EU's acquis? What impact might the conclusion of the 'fiscal compact' treaty have on other aspects of the EU and its policies, such as the EU budget, enlargement, or the Common Foreign and Security Policy?

Should the UK Government support the incorporation of the 'fiscal compact' treaty into the EU Treaties? If it should, what demands and safeguards, if any, should it make its condition for doing so?[6]

6. We envisaged originally that we might produce a report around the end of 2012. In the event, we extended our timetable. First, we decided to await the outcome of the December 2012 European Council. On the basis of the European Council's conclusions in June 2012, the December meeting was for some months expected to take decisions on a "specific and time-bound road map for the achievement of a genuine Economic and Monetary Union", including the identification of measures which would and would not require EU Treaty change.[7]

7. During the summer of 2012, it was reported that the Prime Minister planned to make a major speech setting out his EU policy. It was reported that Mr Cameron might do so during the autumn, or around the time of the December 2012 European Council.[8] In a second prolongation, we decided that we could not sensibly conclude our inquiry—by taking evidence from the Foreign Secretary—before the Prime Minister had made his speech. In the event, Mr Cameron delivered his speech only on 23 January 2013.[9] We were able to hold our fourth and final evidence session, with the Foreign Secretary, in February.

8. In his 23 January speech, Mr Cameron committed any Conservative Government elected in the 2015 General Election to negotiating a "new settlement" for the UK in the EU, and then holding a referendum on whether the UK should remain an EU member. This placed an 'in/out' referendum and the question of the UK's continued EU membership in the mainstream of policy debate in a way that they had not been when we launched our inquiry. In our terms of reference, we had not invited evidence on the 'in/out' question, or on the merits or demerits of an 'in/out' referendum.

9. During our extended inquiry, developments in the EU and especially the Eurozone continued to move fast in some respects. Uncertainty over future developments remained high. When we started our work, the survival of the single currency appeared to be an immediate question. Sir Howard Davies told us in July 2012 that he was thinking "more about what is going to happen between now and Friday than [...] about what is going to happen in five years' time".[10] After a period of relative calm in the second half of 2012, the crisis flared up again over the Cyprus banking sector as we were preparing this Report in spring 2013.

10. The scale and pace of developments—in the EU, and in the Prime Minister's EU policy—between the launch of our inquiry in March 2012 and our concluding evidence session with the Foreign Secretary eleven months later presented us with a challenge when we came to consider making a report. Most of our evidence referred to developments in late 2011 and the spring and summer of 2012; and we had taken no evidence on the Prime Minister's speech of 23 January 2013 other than from the Foreign Secretary and FCO officials. Nevertheless, we decided to report to the House without further delay, and thus without reopening our terms of reference or inviting fresh evidence. We did so because:

We felt able to focus on longer-term issues concerning the overarching principles and practice of UK policy because other parliamentary committees are undertaking detailed scrutiny of many of the relevant and more fast-moving EU policy areas. For example, the European Scrutiny Committee produced a Report on the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) (the 'fiscal compact' treaty),[11] and is conducting an inquiry into the EU scrutiny system in the House of Commons;[12] the Environment, Food and Rural Affairs Committee has produced Reports on the Common Agricultural Policy and the Common Fisheries Policy;[13] the European Scrutiny Committee, the Treasury Committee and the House of Lords EU Committee have conducted work on the Eurozone crisis, Economic and Monetary Union (EMU) and EU financial sector regulation[14] (and the Sub-Committee on Economic and Financial Affairs of the House of Lords EU Committee announced an inquiry into Genuine Economic and Monetary Union in April 2013 as we prepared this Report);[15] the House of Lords EU Committee has also carried out an inquiry into the EU's long-term budget for 2014-2020 (the Multiannual Financial Framework, MFF);[16] and the European Scrutiny Committee and the House of Lords EU Committee have both conducted work on the UK's 2014 'opt-out' decision in the field of EU police and criminal justice policy.[17] In our Report, we focus on broader questions which we encountered repeatedly during our inquiry and which we feel are likely to continue to recur as the debate moves ahead—including in any 'in/out' referendum campaign over the UK's continued EU membership.

Many of the arguments which our witnesses made in connection with Government policy on the December 2011 European Council and the 'fiscal compact' were general ones of principle, which seemed to us to be applicable to subsequent and possible future policy.

The Prime Minister's desire for a "new settlement" for the UK in a more "flexible" EU, including through the repatriation from the EU of some powers, was not a new announcement in his 23 January speech. Mr Cameron had been speaking of this objective since at least late 2011.[18] The Foreign Secretary had also been making similar remarks for some time,[19] and the Conservative Party's 2010 General Election manifesto similarly contained policies along these lines.[20] Even before Mr Cameron's January 2013 speech, therefore, we had been able to explore with witnesses and other interlocutors some of the potential ramifications of what is now his stated policy.

Government and Conservative Party EU policy

11. The Prime Minister's 23 January speech presented our inquiry with a second challenge. Under the House of Commons Standing Orders, our remit is to examine the "expenditure, administration and policy" of the Foreign and Commonwealth Office (FCO).[21] However, in his evidence to us in February 2013, the Foreign Secretary made clear that the parts of the Prime Minister's speech which referred to policy after 2015 were not Government policy, and were not to be acted on by the FCO before the 2015 General Election. Mr Hague said that, with respect to policy post-2015, Mr Cameron had been speaking as Conservative Party leader, and he, Mr Hague, had contributed to the speech as foreign affairs spokesman for the Conservative Party.[22] With respect to the EU reform agenda which Mr Cameron set out in January, the boundary between current Government policy and the policy of a possible post-2015 Conservative Government is not fully clear (see paragraphs 95-104). However, with respect to the other elements of Mr Cameron's agenda, the second party in the Coalition, the Liberal Democrats, does not support Mr Cameron's announcement now of an intention to negotiate after 2015 a "new settlement" for the UK in the EU which includes the repatriation of powers, and to hold by the end of 2017 an 'in/out' referendum which is not necessarily tied to EU Treaty change.[23]

12. Despite the status of Mr Cameron's post-2015 commitments as party pledges rather than Government policy, we decided that we could not credibly publish a report arising from an inquiry into Government policy on the future of the EU without exploring some of their implications. We had extended our inquiry in 2012 precisely in order to await Mr Cameron's speech. In taking the unusual step of commenting on policy which is party policy not Government policy, we have acted on our sense that Mr Cameron's speech is already affecting the calculations and responses of other actors around the EU with respect to UK Government positions.[24] We also aim to help inform the public debate on the UK's EU policy in coming years. In particular, we hope that we have identified some of the issues which we expect—or would like—to see addressed by both sides in any 'in/out' referendum campaign.

13. Our Report examines the key overarching principles of Government policy for the UK's place in the EU, for as long as the UK may remain a Member State. It also starts to explore some of the implications of the Prime Minister's major EU speech of January 2013, in which he outlined policy to be pursued by any Conservative Government elected in the 2015 General Election. Our Report is not an examination of whether the UK should remain in the EU or withdraw. We did not include the 'in/out' question in our terms of reference, which we agreed well before the Prime Minister's speech, and as a Committee we have expressed no view on the 'in/out' question as part of our inquiry. We intend our Report to help inform the public debate on the UK's EU policy in coming years.

Government policy

14. We identified the main elements of agreed Government policy on basic EU institutional questions as being to:

support the UK's continued membership of the EU, and not explore options outside;[25]

rule out any transfer of sovereignty or powers from the UK to the EU during the 2010-2015 Parliament;[26]

ratify only if approved in a referendum i) any EU Treaty amendment which would transfer powers or competences from the UK to the EU, or ii) any one of a number of specified integrative steps which are possible under the existing Treaties (such as adopting the Euro). This has been enshrined in the European Union Act 2011;

require primary legislation to approve any EU Treaty change (also under the EU Act 2011), prior to ratification;

support closer integration within the Eurozone, but rule out UK adoption of the single currency during the 2010-2015 Parliament;[27] and

support further enlargement of the EU.[28]

For reference, we include a timeline of major developments in the Government's EU policy as Annex 1.

Balance of Competences Review

15. A further element of Government policy is the commitment to "examine the balance of the EU's existing competences".[29] The Foreign Secretary launched this exercise, the Balance of Competences Review, in July 2012,[30] and announced further details in a written statement in October.[31] The exercise uses the notion of "competence" in the sense of authority to act in a particular policy area: in any one policy field, competence might lie with the EU or its Member States or be shared between them.[32] However, for the purposes of its Review, the Government is including within the notion of EU competence "everything deriving from EU law that affects what happens in the UK".[33] The Review "will look at where competence lies, how the EU's competences are used, and what that means for our national interest".[34]

16. The Balance of Competences Review got underway in autumn 2012. It is being managed by the FCO and the Cabinet Office, under the oversight of the European Affairs Cabinet Committee (which the Government established after the 2010 General Election and which is chaired by the Foreign Secretary).[35] In the FCO, the Review is being handled by the Future of Europe Department, which the Government established within the Europe Directorate as part of its reorganisation of the FCO's structures for handling EU matters after the 2010 General Election. In April 2012, Angus Lapsley was seconded from the FCO to become a Director in the European and Global Issues Secretariat in the Cabinet Office, in large part to manage the Balance of Competences Review there.[36] To implement the Review, the Government has identified 32 policy areas where the EU has some competence, and the lead UK Government Department for each. For each policy area, the relevant Department is to conduct a review of the impact on the UK of the EU's current competences, by publishing a call for evidence, inviting submissions from individuals and bodies with relevant knowledge and experience, and publishing a report at the end of its work. The European Affairs Cabinet Committee is to approve each report before publication. The whole process is to conclude by the end of 2014. The Government has divided the two-year period into four "semesters" and allocated to each semester the reviews for several of the 32 policy areas.[37] The FCO is conducting or contributing to reviews in either three or four areas: in the first semester, it is conducting the review in the field of foreign policy; and in the final semester, the Government has allocated EU enlargement to the FCO, and some cross-cutting competences to a group of departments including the FCO, but it has indicated both that the review in the field of subsidiarity and proportionality will be an FCO responsibility and that the departmental lead on this issue has yet to be determined.[38] Given its conduct of the foreign policy review in the first semester, the FCO is in the first group of departments expected to publish a report arising from a review, in June or July 2013. The Government has yet to decide how to draw all the work together at the end of the exercise in late 2014. However, it has said that the Balance of Competences Review "will not be tasked with producing specific recommendations [...] will not prejudge future policy and [...] will not be asked to look at alternative models for Britain's overall relationship with the EU".[39]

17. Select committees are among the bodies which the Government is inviting to contribute to the Balance of Competences Review. We responded to Mr Hague's invitation to contribute to the FCO's review of EU foreign policy, in the first semester, with a letter summarising relevant conclusions we have reached in recent inquiries. We expect that the FCO will publish our letter as part of the evidence with its report, in June or July 2013.[40]

18. One of the Government's stated aims in conducting the Balance of Competences Review is to improve understanding in the UK of the impact of EU membership on the country, among both policy-makers and the public. According to the Government, this is to "ensure that our national debate is grounded in knowledge of the facts" and thereby help improve policy, whatever a future Government might determine that policy to be. In launching the Review, the Government said that a thorough analysis of the implications of EU membership for the UK was "currently notably absent".[41] Among our witnesses, several criticised what they saw as a poor understanding of EU policies and processes among even the political elite in the UK.[42] Maurice Fraser of the London School of Economics (LSE), a former adviser to Sir Geoffrey Howe, Sir John Major and Lord Hurd as Foreign Secretaries, regretted what he saw as a "situation in which one of the two central planks of UK foreign policy", namely EU membership, "has never been properly explained to British citizens".[43] The former UK diplomat Sir Peter Marshall argued that UK EU policy was at a stage where it would benefit from "expert impartial assessment and advice", in order to try to forge a broader consensus.[44]

19. Before the first reports arising from the Balance of Competences Review are published in summer 2013, it is too soon to assess the usefulness of the exercise. However, as long as the Review is conducted transparently, impartially and on a wide evidence base, we feel that it has the potential to help improve understanding in the UK of the nature of the country's EU membership and possible future EU policy choices. We discuss later in our Report (paragraphs 107-109) the potential significance of the Balance of Competences Review more widely across the EU.

Structure of Report

20. The extent of the UK's influence in the EU emerged as a key overarching issue in our inquiry. Against this background, in our Report we consider more specific matters broadly in the order in which they arose. In Chapter 2, we assess the notion of UK 'influence' in the EU before turning to the messages about it, and impact on it, of the December 2011 European Council. In Chapter 3, we examine Government policy concerning the broader relationship between the Eurozone and the rest of the EU. In Chapter 4, we consider the agenda set out by the Prime Minister in his January 2013 speech. In Chapter 5, we turn briefly to Norway and Switzerland as possible models for relationships with the EU from outside it. In our concluding Chapter 6, we return to the theme of UK influence in the EU, considering how it might best be maintained in future.

1 Throughout this Report, if no other indication is given, references to 'EU Treaty change' or to 'the EU Treaties' may mean either or both of the Treaty on European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). Back

2 The 'fiscal compact' treaty is properly the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG). The Czech Republic is the other non-signatory EU state alongside the UK. Back

3 The 1992 Maastricht Treaty re-named the European Economic Community (EEC) the European Community (EC). It also established the European Union (EU), comprising the EC plus two inter-governmental 'pillars'. Back

4 "Developments in UK foreign policy", oral evidence taken before the Foreign Affairs Committee on 8 March 2012, HC (2010-12) 1879-i Back

5 "Announcement of new inquiry: 'The future of the European Union: UK Government policy'", Foreign Affairs Committee press notice, 28 March 2012 Back

6 "Announcement of new inquiry: 'The future of the European Union: UK Government policy'", Foreign Affairs Committee press notice, 28 March 2012 Back

7 Conclusions of the European Council, 28-29 June 2012 Back

8 "Cameron bid to claw back powers from the EU", The Times, 1 July 2012;"David Cameron backs Eurozone banking union", " SE)ration of British INdustry n outlined by the Prime Minister David Cameron in his speech of 23 January 2013. UK events are The Independent, 3 July 2012; "PM to reclaim 100 powers from EU", The Sunday Times, 23 September 2012; "David Cameron to try to avoid major row over Europe at Tory conference", www.guardian.co.uk, 27 September 2012 Back

9 David Cameron, EU speech at Bloomberg HQ, London, 23 January 2013, www.gov.uk/government/speeches/eu-speech-at-bloomberg. In the rest of this Report, we refer to Mr Cameron's speech without always repeating this source information, to avoid excessive duplication. Back

10 Q 9 Back

11 European Scrutiny Committee, Sixty-second Report of Session 2010-12, Treaty on Stability, Coordination and Governance: impact on the eurozone and the rule of law, HC 1817 Back

12 www.parliament.uk/business/committees/committees-a-z/commons-select/european-scrutiny-committee/inquiries/parliament-2010/european-scrutiny-in-the-house-of-commons/ Back