EU Industrial Policy

The Committee consisted of the following Members:

Chair: Sir Roger Gale 

† Alexander, Heidi (Lewisham East) (Lab) 

† Blackwood, Nicola (Oxford West and Abingdon) (Con) 

† Blomfield, Paul (Sheffield Central) (Lab) 

† Davies, Geraint (Swansea West) (Lab/Co-op) 

† Hancock, Matthew (Minister for Business and Enterprise)  

† Harris, Rebecca (Castle Point) (Con) 

† Horwood, Martin (Cheltenham) (LD) 

† Rees-Mogg, Jacob (North East Somerset) (Con) 

Rotheram, Steve (Liverpool, Walton) (Lab) 

Simpson, David (Upper Bann) (DUP) 

† Stride, Mel (Central Devon) (Con) 

† Wharton, James (Stockton South) (Con) 

† Wright, Mr Iain (Hartlepool) (Lab) 

John-Paul Flaherty, Committee Clerk

† attended the Committee

European Committee C 

Thursday 4 September 2014  

[Sir Roger Gale in the Chair] 

EU Industrial Policy

[Relevant documents: European Union Document No. 5489/14 and Addendum; European Union Document No. 13964/13 and Addenda 1 to 3; and European Union Document No. 13966/13.]  

11.30 am 

The Chair:  Good morning, ladies and gentlemen. Because this is to some extent an arcane procedure that not everyone may have enjoyed before, let me explain the process before we start. I shall invite a member of the European Scrutiny Committee to give a brief opening statement. There will then be a brief statement from the Minister and, after that, there will be questions up to 12.30 pm. It has been indicated to me that a number of questions will be asked. If we run out of time, I have the power to extend the question period, on the understanding that that time will then come off the time available for debate, so the sitting will finish at the latest by 2.30 pm. 

11.31 am 

Geraint Davies (Swansea West) (Lab/Co-op):  It is always a pleasure to serve under your chairpersonship, Sir Roger. I would like briefly to describe the background to the Commission communication and explain why the European Scrutiny Committee recommended it for debate. 

The Commission communication, which is accompanied by two staff working documents, seeks to provide an overview of the actions already undertaken to improve industrial performance in the EU, identify key priorities for boosting competitiveness and secure political support for selected new actions. It notes that the EU is now emerging from its longest ever recession and sees a strong European industry as necessary to foster growth and competitiveness and achieve the Europe 2020 goals. 

The communication also notes that, despite the resilience of EU industry, the legacy of economic crisis has been severe, and numerous factors have hampered growth. It adds that although the Commission has issued recommendations to member states, full implementation at an EU level is critical. It suggest key priorities, which include the mainstreaming of industrial policy across the Commission’s activities, stimulating investment in innovation, putting in place a more business-friendly framework, the internationalisation of EU firms, improving education and training, and facilitating mobility. A large number of initiatives have accordingly been put forward in each of those areas. 

The Government, for their part, broadly welcome the document. They believe that industry has a key role to play in restoring growth and jobs. They point out that although the Commission has limited competence in this area, it nevertheless also has a vital role to play. More specifically, they welcome the emphasis on mainstreaming industrial policy, the commitment to

take further action to improve the single market, particularly in services, and the renewed commitment to an ambitious and open trade agenda. 

This wide-ranging document addresses a subject of some importance and suggests a number of initiatives. In view of that, the European Scrutiny Committee felt that the House should be given an opportunity to consider the many issues to which it gives rise, which include the impact of the transatlantic trade and investment partnership and its forerunner, the comprehensive economic and trade agreement between the EU and Canada. 

The Chair:  I call the Minister to make the opening statement. 

11.34 am 

The Minister for Business and Enterprise (Matthew Hancock):  I am grateful for the opportunity to discuss EU industrial competitiveness and the document before us. I put on record my thanks to the European Scrutiny Committee for calling for this debate, not least because it comes at an opportune time. Since the industrial policy communication was published, the European Council has called on the Commission to develop a road map for boosting EU industrial competitiveness. That will be discussed when the Council meets next March, and the Commission is currently developing ideas on what should be included in that road map. This debate will help to inform that. 

We support the concept of an industrial strategy both domestically and internationally, but we need to reflect on what a modern industrial strategy is. In developing an industrial strategy, we need to ensure that it is developed in the right way across Europe. Domestically, that means supporting companies across different sectors, including by supporting access to finance, skills and infrastructure, and by being activist in our approach and collaborative in our attitude to business. It is not about picking winners. We have to ensure that that approach is taken at a European level, too. 

As the hon. Member for Swansea West said, the EU has limited competence on industrial policy, but it does have a vital role to play in setting the right framework for industry to thrive. If the EU is to boost the competiveness of industry, it must deliver open markets, free trade and fair competition, and remove regulations that hinder the competitiveness of industry. The EU must promote innovation and ensure that industry has access to the resources that it needs to grow, including energy. 

Let me go through a few of the issues in a little more detail. First, we must deepen the single market. The single market, in the Government’s assessment, is the EU’s greatest economic asset. If European industry is to grow, our starting point must be ensuring that the single market operates to its maximum potential. The Commission must remove any barriers to the single market in goods through effective implementation and enforcement of legislation. The Commission needs to strengthen the single market in services, including by targeting the service sectors that are most important to industry. The Commission also needs to strengthen the digital single market in support of the EU’s high-tech industries, specifically by introducing reforms that make EU legislation fit for purpose in a digital age. 

Secondly, we must open the biggest foreign markets to European businesses. The hon. Gentleman mentioned TTIP and the Canadian free trade deal, which was completed earlier this year. The EU should agree an ambitious trade deal with the United States, which could be worth more than €100 billion every year to the EU. We also hope that the EU will complete negotiations with Japan, which could be worth more than €40 billion a year. 

Thirdly, we need to reduce regulation. We need an EU regulatory framework that is explicitly pro-growth and pro-innovation. The Commission should be more ambitious in reducing the costs imposed on business by unnecessary and burdensome EU red tape. The Commission’s regulatory fitness programme is a start, but it should go further, with better targeted fitness checks and repeals of burdensome or obsolete regulations and the withdrawal of proposals for unnecessary new rules. The Commission should also prioritise a reduction in the overall burden of EU regulation on business via an explicit target at the EU level of at least one in, one out. In this country, of course, we have gone from a one-in, one-out approach to a one-in, two-out approach, and this Parliament is set to be the first in modern times in which the overall burden of regulation on business has fallen, not risen. The EU should put competitiveness tests at the heart of policy making and make greater use of exemptions to regulations for micro-businesses and lighter regimes for small and medium-sized enterprises. 

Fourthly, the EU should also think carefully about the impact of regulation on innovation. The EU has just launched the €80 billion Horizon 2020 research and innovation programme, yet in many areas, such as stem cell research, novel pesticides and nanomaterials, we have—or run the risk of having—regulations in place that create unnecessary barriers to innovation. The EU must get smarter at understanding the impact of its legislation on innovation by bringing more scientific expertise into impact assessments and by effectively monitoring the impact of regulations on innovation. 

Finally, the EU should pay particular attention to energy and ensure security of supply and the competitiveness of our energy-intensive industries. If anything, the need for that has become more acute in recent months. EU energy import dependency is rising—it is now over 50%—as is our external energy bill, which now makes up a fifth of all EU imports. Uncertainty about EU energy policy is blocking investment. All that is threatening long-term planning for industry. It is particularly important for the EU to provide more stability by agreeing a clear, ambitious, cost-effective and flexible 2030 climate and energy framework. We welcome the Commission’s consultation on measures to minimise the risk of carbon leakage, and we support the proposal to improve and focus the system of free allocation after 2020 as part of the strengthened EU emissions trading scheme. However, that needs to be done in an evidence-based way to ensure that sectors genuinely at risk continue to receive the protection they need. 

We also welcome the modernisation of the Commission’s environmental and energy state aid guidelines, which allow member states to provide state aid to avoid certain businesses particularly affected by energy and climate change policies being put at a significant disadvantage. Here in the UK, we have exempted some energy-intensive industries from some of the charges. 

Finally, the Commission needs to consider how our industries adapt over the long term. It must ensure that it focuses on research and innovation in relation to energy. We need to ensure we are investing sufficiently in innovation so that we can reduce emissions and increase energy efficiency to help us to compete in a low-carbon world and make the most of new technologies. 

It is clear from recent growth projections that the EU is still a long way from fully exiting the economic crisis that it is in. By focusing on priorities, especially the priorities for growth that I have set out today, the Commission can help member states by setting the conditions under which our businesses can create jobs, boost growth and aid their recovery. 

The Chair:  Before we proceed, I should say that those on the Opposition Front Bench have most courteously indicated to me that they wish to put a series of questions to the Minister. I have agreed that the questions will be grouped because they are subject related. We will therefore take them in groups and the Minister will then respond. I am acutely conscious of the need to preserve the rights of Back Benchers to participate fully in the debate, so I propose to take a group of questions and then allow the Minister to answer. Back Benchers may intervene at that stage with a related follow-up question, and then we will revert to the Opposition Front Bench. I hope that that will obviate any unnecessary debate later, but, most importantly, everybody will get their say. 

Mr Iain Wright (Hartlepool) (Lab):  It is a pleasure to serve under your chairmanship again, Sir Roger. I thank you for your guidance and leadership, which is very helpful. I also thank my hon. Friend the Member for Swansea West for introducing the debate and the Minister for his response. As you said, Sir Roger, I have a series of questions, which I will batch together in themes, to which I hope the Minister will respond. 

The Government recognise that the communication is weighty and broad. Their response discussed whether it would be best to have a general discussion or whether specific proposals should be debated. I welcome that opportunity today. European competitiveness and an industrial policy are vital issues. Perhaps members of the European Scrutiny Committee will also comment on this, but will there be further opportunities to drill down into specific proposals? That is especially relevant, because the Government hint strongly in their response that there is some excellent analysis in the paper, but in the main there is very little evidence of tangible action that will be taken. Will there be further opportunities to discuss these vital matters to do with competitiveness in future? 

Matthew Hancock:  I am sure there can be further opportunities for that, not least if the Opposition want to use their time for it. I am always happy to come to the House to discuss such matters. The procedure is a matter for the European Scrutiny Committee, but I am always open to further discussion. 

Mr Wright:  I thank the Minister for that response. I think we agree across the House that strong European industry is necessary to foster growth and competitiveness. That is especially relevant, as figures this week show

that manufacturing output in the UK is at a 14-month low, with the downgrading of the UK’s industrial growth figures next year. This is urgent, so will the Minister comment on that? Ensuring we have a vibrant industrial and manufacturing sector is important for future prosperity, jobs growth and innovation. How are we responding to the downturns in output figures that we have seen this week? 

The previous Minister for Business and Enterprise—the right hon. Member for Sevenoaks (Michael Fallon)—stated in response to the document, in his memorandum, that he welcomes the emphasis on “mainstreaming” industrial policy across the whole European Commission. What does that mean? Does the present Minister believe that mainstreaming will mean harmonisation of industrial policy across European states? It is important to know whether we will be able to have a distinctive British industrial policy, recognising our specific comparative advantages, or whether we will have to harmonise. A response on that would be useful. 

The document also includes mention of fitness checks and cumulative cost assessments in relation to the main industrial value chains, but it does not say what they are, other than stating that the work is being done with steel and aluminium and that they will be performed with chemicals and forest-based industries. What has been done to date and how will it help those industries in the UK to become more competitive? Will the Minister help the Committee by identifying those? 

We agree with the Government when they state that the Commission should come forward with specific recommendations to remove burdens from key industries. What progress has been made on that? Will the Minister outline the specific recommendations that have been agreed? 

Finally in this batch of questions, I was interested in the view expressed in the document—a view I am in agreement with—that the Commission aims to raise the contribution of industry to GDP in Europe to 20% by 2020. The figure for the UK is around 10%. Does the Minister share the Commission’s ambition? Does he think that we should aspire to that target in this country? 

Matthew Hancock:  The question of industrial production in the UK is vital. The hon. Gentleman will have seen the GDP revisions yesterday, which showed that GDP has been revised strongly upwards in the UK—more than 2%—and that since 2010, productivity has been revised upwards by more than 2% and growth more than 8%. Of course, the recovery from a recession as deep as the one that the previous Administration drove us into is difficult, but at least we are making progress. The job is not yet done, but I hope we will have the opportunity to complete it. 

The hon. Gentleman mentioned “mainstreaming”, and I asked exactly the same question as he did when I first came across the word. It means having the whole Commission and all its different parts having a view on and working towards a strong industrial policy, rather than having that policy within the silos of different bodies within the Commission. It is not about harmonisation, which is an important principle. As he knows, the Government are very much looking for ways

to ensure more subsidiarity by the EU, where possible and relevant. Mainstreaming is not about harmonisation, but more about the whole of the Commission working towards a better industrial policy. In the same way, every Department in the UK is a growth Department and regards itself as such, rather than thinking that that should be left to the Treasury or the Department for Business, Innovation and Skills. 

Mr Wright:  This is an important matter. We had an interesting debate on the future of the UK aerospace industry this week. We are very good at making wings in this country. We want to maintain that competitive edge. Other member states want to take that off us. Can the Minister reassure me and the Committee—I think he will be able to—that, in terms of an aerospace industrial strategy for the UK, our comparative advantage on things such as wings, composites and propulsion systems will be nurtured here in the UK, rather than sent out to other member states? 

Matthew Hancock:  Too right! I agree with that, especially as, when I was growing up as a boy, we used to see the wings of the funny-shaped plane taking off from the north Wales Airbus plant. That is partly as a result of industrial policy in the past. 

We have to ensure that industrial policy and strategy is not about grants to pick winners, but about a joined-up approach between different Departments and about actively talking to businesses about what can benefit them. It is important that we get the definition of industrial strategy right, so that that happens when the EU approaches the question, too. 

Geraint Davies:  On harmonisation and mainstreaming, may I ask two associated questions? First, will mainstreaming be more actively engaged in our procurement strategy—the enormous procurement by Government to foster growth among, in particular, small and medium-sized enterprises across the board? Secondly, on harmonisation, does the Minister accept that, given the transatlantic trade agreements being considered with America and Canada, there is a move towards mutually recognised standards? That is a form of harmonisation, of course. There is concern that that will cause a drive to the bottom in standards, particularly in food safety. 

Matthew Hancock:  On TTIP, we are very clear, as are the American Government, that in harmonising, we will also protect standards, including in relation to food, which the hon. Gentleman mentions, but in other areas, too. Where standards are different for no particularly good reason, there is a good argument for making them the same, so that trade can be easier and more free. If we manage to get a transatlantic partnership and if the EU and the Americans manage to land a trade deal with Japan, we will have large parts of the globe covered by similar standards, which can then become global standards. I can reassure the hon. Gentleman that this is about improving the effectiveness of standards, rather than, as he put it, a race to the bottom. 

On the question of the conduct of fitness tests, we have made a lot of progress during the past four years in ensuring that impact assessments are effective and measure the cost on business. They are never perfect, but we

work to improve their effectiveness, ensuring that when the Government take an action, they know what the effect will be on business. Measurement is a vital part of that, as is ensuring that the assessment is made at the start of the policy process, rather than being an add-on at the end. We have made a huge amount of progress towards that. The Better Regulation Executive has done a great deal of work to improve that, and we need to see that at EU level as well. 

The final question the hon. Member for Hartlepool asked was about the 20% target for reindustrialisation. There was a time when 20% of our GDP was in manufacturing. That was when the Labour Government came to office. Now it is about 10%. It is a great pity that during those 13 years it halved. We are starting to reverse that trend. We know the direction that we want to see. Setting a target is neither here nor there; what matters is the action we are taking, and we are taking an awful lot of action, so we do not think that having a target in that respect would have a particular benefit domestically. What matters domestically is ensuring that we support businesses, large and small, to be able to expand and grow and that we reverse the trend of reducing manufacturing as a proportion of the economy that we saw under the previous Administration. 

Mr Wright:  The Government note that the measures set out in the communication will establish a framework for climate change and energy in the period 2020 to 2030. I shall two questions in relation to that if I may. First, does this communication alter the Government’s position on a decarbonisation target for 2030, which would allow and provide a longer-term horizon for industry to plan and bring online substantial capital expenditure programmes in order to help to create low-carbon energy production? 

My second question relates to energy-intensive industries. It is important that we maintain the competitiveness of energy-intensive industries, as the Minister rightly said. I am particularly pleased to see on the Opposition side of the Committee, in addition to me as a north-eastern MP, my hon. Friend the Member for Sheffield Central and my hon. Friend the Member for Swansea West, a south Wales MP. We are very keen to ensure that we maintain a steel industry in the UK; the issue is how we can combat the energy costs. Will the Minister clarify further how we can ensure that energy-intensive industries do not leach elsewhere, outside Europe, and how we will maintain competitiveness, but at the same time address the environmental issues that we need to address? 

Matthew Hancock:  My predecessor worked hard to ensure that the EU state aid process allows support for energy-intensive industries. There is no point in us, as a nation, or Europe, as a continent, putting in place regulations that just mean that industrial production goes elsewhere. The Commission has changed its state aid procedures. We got a significant package of support for energy-intensive industries through, and we got state aid approval for that. I pay tribute to the Defence Secretary for the work he did when he was in my job. 

On the 2030 target, while we are clear that we support a decarbonisation target, it should be technology-neutral. There are many ways to reduce carbon emissions, including by moving from coal to gas—increasing the proportion of gas in the mix can reduce carbon emissions—and

getting the new generation of nuclear power going. That was started under the previous Administration, and we are taking that forward. There are also renewables, and carbon capture and storage. We are clear that we strongly support a decarbonisation target for 2030, but we think it should be technology-neutral, rather than a renewables target, which captures only part of the mix to solve the problem. 

Geraint Davies:  On energy-intensive industries and state aid, is the Minister worried that the transatlantic trade and investment partnership and its predecessor, the comprehensive economic and trade agreement, might create challenges to whether state aid for energy-intensive industries in Europe is legal in arbitration panels behind closed doors, and that Governments might be fined for providing such aid? 

Matthew Hancock:  The level of detail in the TTIP negotiations has not, as far as I am aware, got that far yet, but I am sure that that point will be borne in mind. 

Jacob Rees-Mogg (North East Somerset) (Con):  I reiterate what others have said, Sir Roger, about what a pleasure it is to serve under your chairmanship. It is a particular pleasure to welcome my right hon. Friend the Minister to his role, which he carries out with great distinction. 

I want to follow up on the energy point. It seems to me that the European Union is rather confused in its documentation. Page 28 of the bundle bemoans the high cost of gas and electricity compared with that in the United States and China, but the regulatory framework has created that, at least to some extent. The cost is partly due to difficulties in introducing hydraulic fracturing, but it is partly to do with green targets, which are already more onerous in the European Union than they are in other countries. It is not about 2030; it is about unravelling what we have already got. Will the Minister be pushing the European Commission to follow up its concerns on prices rather more than its concerns on green issues? 

Matthew Hancock:  I would like to return the compliment, because it is a great pleasure to be with my hon. Friend as he performs his role of checking that the European Union is not going too far—that seems to be his role in life. 

The Commission considered whether it should go into the space of regulating onshore shale gas extraction, and it decided not to, not least thanks to the arguments made and the work done by this Government. That remains a domestic matter—it is a domestic priority—and we have a strong and safe regulatory regime, which is important for people’s reassurance. There is cross-party support among the three main parties that we need to take advantage of this indigenous resource. 

On pricing, one of the reasons why gas prices are lower in the United States is precisely because it is a decade or so ahead of us on shale extraction. Also, it does not have the export terminals to be able to sell any excess abroad. One reason why the coal price has fallen so sharply is because America no longer needs as much coal as it did. Also, coal is internationally tradeable. I would not blame higher gas prices in Europe entirely on

the European Union, as we also have to manage carefully the supplies that come into the European Union from the east, and that has not been made any easier by the situation in Ukraine. 

Geraint Davies:  But on the point about fracking raised by the hon. Member for North East Somerset, my colleague on the European Scrutiny Committee, and in relation to the transatlantic trade and investment partnership, the Minister may be aware that the US fracking company Lone Pine is suing the Canadian Government for $250 million because of a moratorium on fracking introduced by Quebec. I would be interested in his view on how this partnership will move ahead at a time when we are looking at exploiting fracking. If places such as Wales, to which authority on planning is devolved, refuse consent in areas of outstanding natural beauty, for instance, we would be subject to such intimidation and financial penalty, which is against the interests of local voters. 

Matthew Hancock:  I do not want to get into the details of that specific case, not least because the US-Canadian trade deal is different from TTIP. However, ensuring that we get shale gas out of the ground is clearly a domestic matter. Although the regulations around that are essentially domestic, and are strong and clear, we want to ensure that companies that want to get gas out of the ground can proceed efficiently, but in line with our strong safety requirements. I would be interested to see more detail of why the hon. Gentleman thinks that there will be a particular problem, but I do not regard that as a serious barrier. 

Geraint Davies  rose—  

The Chair:  Order. I assume the hon. Gentleman’s question is on the same subject. 

Geraint Davies:  Yes, Sir Roger. 

More generally, how would the Minister try to overcome the strategic conflict between what I hope are all our desires for greater environmental controls for a sustainable climate, which drive up costs for energy-intensive industries, and the displacement of industries to areas that do not have such controls? Does he think there is a case for carbon pricing imports to level the playing field? 

Matthew Hancock:  That proposal is technically difficult. The amount of carbon used to produce an item can be different depending on the production process involved. One particular item cannot be measured on import as automatically having a particular carbon attachment. 

More importantly, we have to ensure we move to a lower carbon economy without adding costs, and there are many ways to do that. The advance of technology is on our side. For instance, the rapid reduction in the price of solar over the past decades means, I hope, that solar, in the short to medium-term, will become cost-effective compared with fossil fuels. That would mean that we could have energy that was greener, but also at a lower cost. It is important that we ensure that we get the right innovation to back up these developments and bring them to scale. I am optimistic because the march of technology is on our side. An increase in energy prices

leads to more investment, at both the research and the scale ends, which helps to make things such as solar energy more and more cost-effective, ultimately bringing down the cost of energy and making it competitive without subsidy. 

Jacob Rees-Mogg:  I share the Minister’s long-term optimism, but the UK is losing coal capacity, so it is not benefiting from the full extent of the fall in the coal price, partly because we are trying to meet EU targets. Can that be a sensible policy? 

Matthew Hancock:  As I said, the 2020 renewables target to which the previous Administration signed up specifically says that we must reduce our carbon emissions through renewables, rather than through whatever technology is most cost-effective. We are vigorously arguing against taking that approach in future because we want to be able to reduce carbon emissions at the lowest possible cost. The 2020 targets were agreed in the past, but the 2030 targets are not agreed, and the Government are united in taking a technology-blind approach—“blind” is probably the wrong word, so let me call it a technology-neutral approach—to reducing carbon emissions at the lowest possible cost, and we will keep pushing for that. 

Martin Horwood (Cheltenham) (LD):  It is a pleasure to serve under your chairmanship, Sir Roger. 

If I might follow on slightly from that debate about energy, the thing that can square the circle in terms of being technology-neutral and not necessarily favouring renewables as the route to reducing carbon emissions is carbon capture and storage technology. Given our legacy on North sea oil, coal and other things, that should be an absolute leadership opportunity for this country, so it would be interesting to hear what the Minister has to say about that. 

However, I want to ask two questions, which are not directly related. One is about manufacturing. Manufacturing companies in my constituency, such as SuperGroup, have made the point that a lot of what we do on business strategy is, rather generically, about trying to support business. Even in this strategy, which is supposed to be about industrial policy and competitiveness, quite a lot of the measures are rather generic, business-friendly ideas. That is fine and obviously to be welcomed, but the point that Julian Dunkerton and others from SuperGroup have made to me is that the resilience of the service sector is not as great as that of manufacturing when it comes to things such as a recession, and we have seen the extreme vulnerability of areas such as the financial services sector in the past few years. We need to maintain a real manufacturing base, and it is common ground that we are all rather alarmed at the reduction in manufacturing as a proportion of our economy. What is there in the strategy and the Government’s response that specifically supports manufacturing? The innovation and the research and technology seem to do that, but what other opportunities does the Minister see for supporting manufacturing in particular? 

My other question is about the potential for the strategy to rectify some of the deep and underlying competitiveness of and economic performance problems in other parts of the eurozone. The performance and lack of competitiveness in economies such as Italy’s

pose a threat to not just the eurozone, but the whole European economy, and it is in our collective interests that we see some light at the end of the tunnel on such problems. If something such as the transatlantic trade and investment partnership eventually comes into force—I am a great supporter of TTIP, albeit with all the caveats about health and safety and environmental standards that have been mentioned—the effect on a really uncompetitive economy could be quite damaging; in some senses, it might make the downward spiral even worse. I would therefore like to hear what the Minister has to say about that from a whole-European perspective. We now have strongly interlinked economies and patterns of debt, which makes us vulnerable to underperformance and uncompetitiveness in other parts of Europe. 

Matthew Hancock:  Let me take the three points in reverse. Having a more competitive eurozone and making areas in which there is currently competitive weakness in the eurozone more competitive are vital for the eurozone’s future. Our argument for competitiveness—for putting growth at the heart of the Commission’s agenda, for deregulation, for making it easier to do business in the EU and for subsidiarity—is not simply an argument for Britain, although it is a good argument in terms of Britain’s future; it is an argument for the whole EU. Our EU reform strategy is an argument for improving the whole EU. 

I would just caution the hon. Gentleman on TTIP, because all the theory and evidence in almost all the history of the world shows that improvements in free trade drive up living standards in the richer and poorer countries engaged in that trade. We could look at the changes in China over the last 30 years. Thirty years ago, when China started to re-engage in trading with the world economy on a major scale and opened up to trade, it was much poorer than the west; now its prosperity is growing much faster than the west’s. That gives the lie to the argument that trade will be tougher on countries that are less competitive; on the contrary, free trade benefits everybody, as long as it is handled right. It can benefit—and in recent decades has benefited—the poorest the most. In fact, I would go so far as to say it is the single best anti-poverty measure that humanity has ever invented. 

Let me turn to the point about manufacturing. Again, I would caution against sweeping statements. The hon. Gentleman said the resilience of the service sector was not as great as that of manufacturing, but that is too great a generalisation. Of course, some services were not that resilient to the crash, one of which was the banking sector. While some manufacturing areas were very resilient, some struggled enormously. We therefore have to be more specific, and the industrial strategy is about taking that into account. Some people say we should not have an industrial strategy and we should be neutral towards different sectors. My response is that the Government have an industrial impact whether we like it or not because we regulate the pharmaceutical industry differently from how we regulate energy-intensive industries, and we regulate financial services differently again. We should actively think about how we treat different sectors and do so intelligently, rather than denying that we have that industrial impact. 

On the final point, we have given a huge amount of money to two pilots on carbon capture and storage. One of the exciting things about the new electricity

market reforms—“exciting” is not an adjective that is often used about them—is that they will allow different technologies to compete on a level playing field, including CCS, which is a low-carbon but not a renewable technology. They will also include demand-side reductions, so there will be energy efficiency, and local generation will be able to interact competitively with large-scale traditional generation. That will improve the competitiveness of the industry and, ultimately, be good for consumers in terms of cost. 

Mr Wright:  Picking up the theme of carbon capture and storage, I appreciate what the Minister says, but it is disappointing that we have lost four years because of cancelled projects. We could have had a real competitive edge in the global economy on this new technology, which could have been centred in the north-east and other regions, but we have missed that opportunity, which is a real shame. 

However, I want to develop the theme the Minister started to develop about securing and stimulating investment in innovation. In its paper, the Commission refers to the Horizon 2020 programme, which provides €80 billion to make industries cleaner and smarter. Today, the Minister has said he is keen to ensure that we bring technology to scale, and I very much welcome that, but how much of the €80 billion pot will the UK receive? What is he doing to make sure we get our fair share? 

The paper prioritises a number of cross-cutting themes; advanced manufacturing, clean vehicles, sustainable construction, bio-based products and key enabling technologies. Those seem to align closely with the UK’s individual strategy sectors—areas where we have comparative advantage, such as aerospace, automotive, construction and life sciences. The UK does those very well, and that is how we are going to pay our way in the world in the future. I welcome what the former Minister, the right hon. Member for Sevenoaks, did in terms of the eight great technologies. Given that close correlation with what the paper proposes, will the Minister say what the Government are doing to ensure we take maximum advantage of it and to secure additional funds to further our individual strategic aims? 

On sustainable construction and raw materials, the paper proposes to set up a €25 billion European Investment Bank lending capacity for energy efficiency in residential housing. That is welcome in terms of leaky housing stock in this country, and we need to make sure that all housing stock in Britain is energy-efficient. How far has that proposal been advanced? How will that tie in with the Government’s green deal agenda, which has not worked as well as we would all have liked, in ensuring that the housing stock is as energy-efficient as possible? 

As a north-eastern MP, I was particularly interested in the €100 billion of European structural and investment funds that are at the disposal of regions to finance support for industry and SMEs. How will my region of the north-east and others secure access to those funds? 

Finally in this batch of questions, the Commission states that further efforts are needed to achieve the Europe 2020 target of spending 3% of GDP on research and development, but never articulates what those further efforts are. Will the Minister tell the Committee what they are? We need to address the matter urgently in the UK. Our country spends only

1.72% of GDP on R and D. As a percentage that has fallen over the lifetime of this Parliament, which is a matter for debate in itself. 

Does the Minister accept that that proportion of GDP is not conducive to a high-value, high-skilled innovative economy that will be successful and prosperous in the long term? What are the Government doing to increase R and D spend as a total proportion of our economy? 

Matthew Hancock:  We do not yet know how much of the Horizon 2020 funding will come to the UK because it is not yet all allocated. In the last framework programme and comparable budget, UK organisations had the second-largest take-up of EU funding, at 15.5% of the total pot, compared with Germany’s 16%. One could say that they beat us on penalties. The reason why we got good participation is our extremely strong university base. 

That is tied in with the series of actions that we are taking to improve R and D; for instance, the creation of new catapult centres to tie in high-end research with commercial usages. Traditionally, the UK has been seen as somewhere that invents things but does not bring them to market and we are trying to change that. Despite having had to sort out the public finances, we have also protected the domestic science budget, which is an important part of this process. 

The hon. Gentleman asked how to access the structural funds. The regional growth fund and the European social fund are two crucial parts to how those funds are delivered, and those delivery routes to the UK are well established and pretty smooth. 

I was surprised the hon. Gentleman had a crack at the green deal, given that 750,000 green deal and energy companies obligation improvements have been made, so we are on track for our 1 million homes to be improved, and given that more than 400,000 green deal assessments have taken place. The green deal home improvement fund was so successful that it managed to use all its money much faster than anticipated. I simply do not recognise his criticisms. 

On the European Investment Bank, the programme is in early development and I am sure more details will be announced in due course. 

Mr Wright:  I want to move on to the priority of maximising the potential of the internal market. The paper refers to reforming public procurement rules, and I certainly want to see procurement used as a driver to build up skills and industrial capability in this country; I strongly feel that we should do that. What does the reform of public procurement rules actually mean? Will the Minister provide more detail? 

The communication invites member states 

“to unleash the potential of the transport sector by making it easier for rail operators to enter and operate in the EU market”. 

How does that apply to this country? It seems to me that we have open access already. We have a number of foreign operators running rail franchises, but that does not seem to be reciprocated elsewhere on the continent. Does the Minister envisage further opening of the rail

market? Does he believe that there is scope for UK public sector operators to bid for franchises here and elsewhere on the continent? 

A key factor that must be managed in order to drive forward competitiveness and innovation is access to finance for SMEs. That is a major barrier to growth, which the paper recognises—it actually shows that the UK is the fourth worst in the Commission for access to finance for SMEs, so that must be a priority for Britain and for the Government. The paper states: 

“An internal market for capital where SMEs can have cross-border access to finance still remains an objective to achieve.” 

Is that the Government’s intention? What progress has been made? 

I understand what the Minister said earlier about removing the burden of regulation for SMEs and other corporate entities. He mentioned the one-in, two-out initiative: can he confirm—for my ignorance rather than anything else—that that initiative specifically excludes directives and regulation from the EU? If that is the case, it is irrelevant to today’s discussion. 

Matthew Hancock:  Moving backwards through those points, the one-in, two-out initiative is about UK domestic legislation, but we want to apply it at the EU level. We want at least to apply the one-in, one-out approach at the EU level—one might think that going further would be a good thing—which is why we are pushing it in this agenda. Nevertheless, the UK domestic one-in, two-out rule does exclude EU directives, so it is important that we try to achieve it at the EU level. I mentioned it because we are pushing for it in the Commission and because it is a great model for reducing the burden of regulation and getting the attitude of improving how businesses are regulated right into the bones of organisations and different Departments. In some cases it is about deregulation, but in others it is simply about making regulations easier to comply with, even if they are just as strict. A lot of that is about reducing bureaucracy. The issue is the burden of the regulation, not necessarily its desired outcome, although sometimes that is also relevant. 

Mr Wright:  How successful has the Minister been in getting into the bone of the EU? How many wins has he had? 

Matthew Hancock:  Under the Barroso leadership of the Commission, there has been a small move towards a deregulatory approach, but we hope to go much further. We have had much more success in getting into the bones of UK Departments, which often now go around looking for outs—ways to remove burdens from businesses—not least if they want to introduce other regulations. 

Going up the list, cross-border access to finance is of course very important. The UK has one of the most open economies in terms of finance, but that is not true across the EU. Likewise, access to finance is a huge and continuing problem for small and medium-sized businesses, but that is because we had the biggest banking bust in the history of the world in 2008, from which we are still recovering. Although we are now getting one of the

banks that was left in public ownership, Lloyds, back into private ownership, the biggest, RBS, still has some way to go. 

On procurement, the Government have a target for 15% of procurement to be with small and medium-sized businesses. We are moving towards that and making good progress, and there is further progress and movement in the Small Business, Enterprise and Employment Bill. We want to do something similar at the EU level, because, crucially, although the EU procurement rules are important in ensuring that Governments are fair-minded in their procurement, they are also very bureaucratic. Simplifying those rules would be incredibly helpful in the short term. 

Mr Wright:  The Minister mentioned the target for 15% of Government procurement to be with SMEs. Will he outline how the Government are currently doing on that target, and can he confirm that he will achieve it by the end of the Parliament? 

Matthew Hancock:  I can do better than that, because it is actually a 25% target—that was a slip of the tongue. I will write to the hon. Gentleman with progress— 

Geraint Davies:  Hopeless. 

Matthew Hancock:  The hon. Gentleman says that I am hopeless; I apologise for that lapse. However, we are moving towards that target firmly and I will certainly write to the hon. Member for Hartlepool with the exact details of where we are up to—I think they are in the public domain anyway, because I have answered parliamentary questions on that subject recently. 

Finally, on train supply and franchising, the hon. Gentleman is quite right that European companies own different parts of the UK train system and invest in them, which is welcome, but that is not the case in all European countries. Again, that is about completing the single market and opening up the rest of Europe to UK investment. 

Mr Wright:  May I press the Minister on that? On opening up the rail market and public procurement, thinking about that in the round, we are keen to ensure that procurement acts as a driver of enhancing competitiveness and industrial capability. Bombardier was an interesting example in terms of excelling in industrial capability, but other countries seem to be better at that than the UK. How can we drive forward competitiveness and innovation while ensuring that Britain’s industrial base has a healthy future? 

Matthew Hancock:  I think that we broadly agree. The Bombardier contract was given under rules set up before we came to office, although the decision was taken afterwards. However, we have certainly made progress on ensuring that there is the supply chain to provide adequate support to big procurement. Crossrail, which is the biggest engineering project in Europe, requires a certain number of apprentices for every $1 million of contract value. We will also do that with HS2, which will be an even bigger procurement and HS2 college will play an important part in ensuring that we get the skills.

Industrial strategy is absolutely about actively bringing together skills and access to finance and supply chain issues. 

The Chair:  The hour allotted for questions has now expired, but it is clear that question time is yet to run out of steam. Therefore, under the provisions of Standing Order No. 199, I am extending question time to allow the remaining questions to be asked. We will move on to the debate in not more than half an hour and, as I indicated earlier, any time taken up now on questions will be taken out of that available for the debate. 

Geraint Davies:  May I just make the point that I was not referring to the Minister being hopeless, but the targets themselves? 

The very nature of procurement to local SMEs means that income tax and corporation tax are paid locally and local people are employed. If however an international company is chosen instead, often that company will not pay corporation tax to the Exchequer and its employees and supply chain will be outside of this country. Does the Minister agree that a case can be made in the national interest and that of the Government purse not always to go for the lowest price? Will he also look at what is happening in Wales, where 60% of procurement goes to SMEs, of which half are based in Wales? Could that not be a central driver? Finally, does he agree that, under the comprehensive economic and trade agreement, such “buy local” policies are at risk of being made illegal owing to the attempts being made by multinational corporations who want all the trade and to keep the tax money in their pockets in tax havens? 

Matthew Hancock:  That seemed to end up on an anti-capitalist rant, but, laying that part to one side, we of course favour measures to increase the amount of SME bidding in procurement. I accept criticism of our approach from some, but I will not take it from the hon. Gentleman. There was very little of this when we came into office. Pre-qualification questionnaires that refused even to allow bidding from companies that did not have three years of accounts, for instance, meant that a whole load of SMEs that could potentially supply at a much cheaper cost were cut out. There has been a huge amount of work to open up government procurement to SMEs and we are moving in the right direction pretty rapidly, but the situation we found in 2010 was horrendous in terms of the red tape SMEs had to go through. I am passionate about this, having a small business background myself, and it is a great pity that this drive did not start earlier and that we had to wait until the election of a coalition Government. 

On TTIP, we have to take value for money into account in the broadest sense when going through Government procurement. That includes price, but I would go further than the hon. Gentleman in one area: the lowest price is not always the best deal, even on its own terms. Quality must be taken into account in the judgment, as well as the economic benefits—[Interruption.]  

The Chair:  Order. 

Mr Wright:  My penultimate batch of questions relate to the subject of the internationalisation of EU firms. The Commission talks about how ensuring access to global markets can promote competitiveness, and that

is absolutely right. However, we also need to ensure that we have a level playing field for British firms competing elsewhere in the world. I mentioned that we had a great debate earlier this week in Westminster Hall about the future of the UK aerospace industry, and this issue came up there. The likes of Airbus are having to deal with tax breaks and state subsidies being given to US aerospace manufacturers. We have one hand tied behind our back when it comes to competing; it is not a level playing field. How are the Government working with the World Trade Organisation and others to address that? 

What steps are the Government taking to ensure that there is access to markets within Europe itself? The theme of today is that we are a relatively open economy. That is good and it is welcome. Foreign firms are able to win contracts here easily, but it often seems difficult for British firms to have a reciprocal agreement to win procurement orders elsewhere in Europe. Supply chain orders for German contracts often go to German firms. A lot of that is down to the innovative nature of German supply chains, and we need to ensure we are as competitive. What is the Minister doing to ensure there is easy and fair access across government? 

TTIP has been mentioned several times. Opposition Members firmly believe that in any bilateral negotiations—I am specifically thinking about TTIP—the NHS should be excluded. Will the Minister pledge to do that? Will he ensure that the NHS is not included in TTIP negotiations? 

Matthew Hancock:  The need to ensure that supply chains benefit from contracts won in this country is one reason why we have an industrial strategy, in order to pool all these things. In the past, we did not have an industrial strategy and there was an attitude that it would be wrong to have one. I am delighted that we do, so my justification for having an industrial strategy is essentially an existential one. 

In terms of the NHS in TTIP, what matters for NHS procurement are the rules within the NHS. We are masters of our own fate in terms of whether we try to take advantage of the best possible private medical care within a system that is funded by the taxpayer and is free to everyone at the point of delivery, according to need. I wholeheartedly cherish that principle. How that is then delivered is a matter of getting the best possible value for money and care for the £110 billion we spend on the NHS. 

Mr Wright:  This is my final batch of questions, Sir Roger, and I am grateful for your help and guidance, and the way you have conducted the Committee. 

I want to talk about upgrading skills. The paper talks about providing traineeships in firms on a cross-border basis, which sounds interesting. What are the UK Government doing to take that forward? The paper also talks about clusters as a means of creating favourable and innovative ecosystems. I agree with that. I like cluster theory. Clusters can provide real economies of skills and competitiveness, and we see good examples of that in this country. However, the Commission does not identify that or advance the argument. What clusters will we be nurturing? What specific clusters will be helped? 

The Commission refers to a small business Act that could create more synergies. As the Minister is aware, we have a Small Business, Enterprise and Employment Bill currently going through the House. To what extent have the Government aligned the provisions in the Bill under consideration in Committee with what the Commission outlines? 

Finally, there has been a broad discussion and line of questioning today. Will the Minister pledge to go back and look Hansard and write to you, Sir Roger, and to the rest of the Committee with clarification on any questions that he has not answered? That certainty would be helpful. 

Matthew Hancock:  As the hon. Gentleman knows, I am a passionate advocate of improving skills, and we do not need the EU to do that. Skills is an area where subsidiarity reigns. I introduced traineeships as a policy in this country. It is interesting that the concept has been picked up by the EU, but I do not want the EU definition of traineeships to contradict a policy that we have introduced and that is working. As we devolve education down to the nations of the UK, there is absolutely no need for interference in education, including in traineeships and apprenticeships, at the EU level. We have much to learn from the Germans, but also from, for instance, the Swiss and the Australians, which are not members of the EU. 

I agree with the hon. Gentleman about clusters: the concept that a geographical area improves when it focuses on a particular area undoubtedly has merit. For instance, we have a pharmaceutical cluster in Cambridge, high-tech computing clusters in London and, increasingly, in Manchester, a maritime cluster in Portsmouth and a chemicals cluster in Cheshire. This country has had clusters—they are a natural development—and our attitude is that the Government should support, rather than lean against, such clustering. We should not say, “This works really well in Cambridge and therefore we should spread it across the country.” We should say, “This works really well in Cambridge. What can we do to help?” The same is true for car manufacturing in Sunderland, for example, and there are legion others of different degree. Because of the nature of the economy—being a mix of the efforts of millions of people—it is inevitably messy and complicated, and we should not try to oversimplify it, but treat the world as we find it. As in education, we do not need the EU to do that; we are getting on with it ourselves, thanks very much. 

I had not noticed that the documents recommend the Small Business, Enterprise and Employment Bill, but again it is clear that we are ahead of the curve. 

Jacob Rees-Mogg:  I was very much in agreement with the Minister when he said that we had to have an industrial policy because the remit of Government was so wide that it was impossible to avoid one. He characterised it, from the British Government’s point view, as being activist and collaborative. That seems sensible. My worry about the approach taken in the voluminous documents that are before us is that they hark back to a more 1970s-style industrial policy, with elements of picking winners and standardising to remove competition. 

Standardisation comes into the documentation and has been discussed in the context of harmonisation. The two terms are broadly interchangeable, although

there may be some nuance between them. The risk of standardisation is that the ability of companies to innovate and achieve a competitive advantage that promotes their product is taken away, or that standardisation is taken to such a level that people are priced out of the market from the consumer end and unable to afford to do what they wanted to do in the first place because the standard has been set so high. 

There are difficulties with the underlying approach to standardisation and harmonisation, and there are some contradictions in what the EU is trying to do. I have tried to bring that out in relation to the energy market: the EU bemoans the fact that energy is much more expensive in the EU than in the rest of the world, but ignores the fact that that is partly created by the EU’s own policies. The Minister put it clearly with reference to the 2020 targets, which are a serious burden and are leading to higher prices for energy in the UK. That is problematic for our industry. I want to go through the document a little— 

The Chair:  Order. I thought we were about to get somewhere. I was waiting for the question. There are formalities to go through first. 

Jacob Rees-Mogg:  I do apologise. 

The Chair:  That is quite all right; I was allowing as much leeway as I thought reasonable, with the expectation that the question would be forthcoming. I now understand where the hon. Gentleman is coming from. If hon. Members wish to ask no further questions of the Minister at this stage, we will proceed to debate the motion. As we have already had a fairly comprehensive discussion, the Minister may move the motion formally, but if he wishes to make a speech, he may do so. 

Motion made and Question proposed,  

That the Committee takes note of European Union Documents No. 5489/14 and Addendum, A Commission Communication: For a European Industrial Renaissance, No. 13964/13 and Addenda 1 to 3, A Commission Staff Working Document: Member States’ Competitiveness Performance and Implementation of EU Industrial Policy, and No. 13966/13, A Commission Staff Working Document: European Competitiveness Report 2013: Towards knowledge driven reindustrialisation; and supports the Government in pressing the Commission to develop a roadmap for industrial competitiveness that focuses on open markets, competition, trade, better regulation and innovation.—(Matthew Hancock.)  

12.41 pm 

Jacob Rees-Mogg:  I apologise for my confusion about the procedure, which I really ought to know by now, as I have attended quite a number of these debates. 

Page 6 of the documentation shows the point I made about it having a smack of 1970s industrial policy—the thought that by spending €100 billion of public money, a successful industrial policy can be created. I am not convinced that that is the right way of going about it. As the Minister set out, the best way of creating the circumstances that support industrial policy is for the Government to look at what they do that hampers competitiveness, rather than thinking that subsidies are the way to do it. I have doubts about how the €100 billion for the European structural and investment funds will be spent, where it will go and how it will be determined which industries will benefit. We know from

experience that it tends to be the market that decides and works out what will succeed, rather than clever people in Whitehall and Brussels. 

A specific concern is that the EU 

“is contemplating rules creating the technology and regulatory conditions for space infrastructure commercial exploitation”. 

I wonder whether that is not more of a vanity project—the EU trying to compete with the United States, Russia, China and even with India to have its own space programme—rather than something that will really be commercial. If it will be commercial, would it not be better that companies should try to do it? We all know that Sir Richard Branson wants to offer people flights to the moon or wherever—not something I should like to take advantage of, because it would take one too far away from the House of Commons—but it is something that there is a commercial interest in providing. 

Geraint Davies:  Pluto. 

Jacob Rees-Mogg:  The hon. Gentleman wishes to go to Pluto. He would be a great loss to the House if he went that far away, and to the good people of Swansea, who would go into a state of mourning, I fear. 

The Chair:  Order. I have to ask the Committee to at least try to stay on the same planet. 

Jacob Rees-Mogg:  Indeed, Sir Roger. It would be helpful if the EU was trying to do the same. 

I am concerned about the EU’s space project, but I am also concerned about the lack of realism in the document and the pretence that everything is much better than it is. Page 16 of the bundle says: 

“Overall, EU industry has proved its resilience in the face of the economic crisis.” 

That seems quite a broad and sweeping statement on the worst financial crisis that the EU has ever faced, with unemployment rates such as they are on the continent. Reading on, there is a certain lack of precision with statistics—or, perhaps, a use of statistics to give a convenient misimpression. I rather like the figure given of a surplus of €365 billion in the trade of manufactured products, but when one reads on, the small print in note 2 says: 

“Estimate based on Eurostat trade statistics.” 

That is fine: let us assume the statistics are good and reliable. The note continues: 

“This figure refers to manufactured products only and therefore, it does not include trade flows of energy and raw materials where the EU presents a negative trade balance.” 

If one takes out the costs of manufacture and the inputs of manufacture, one may not have a surplus balance in manufacturing, so we are getting a rose-tinted view of what is actually going on, which we should be concerned about if a good deal of money is going to be spent on this approach. 

Further on, on page 18, the document says: 

“The internal market remains the centrepiece of the EU’s economic success.” 

It is hard to see this great “economic success”—I was waiting to read that Mr Barroso or one of the Commissioners was born at the Baekdu mountain, with a couple of rainbows appearing to celebrate the event,

which is how people greet the leaders of North Korea. There is this unrealistic view of what is going on. Some swallows also appeared, so as to welcome the North Korean leaders. Did that happen when Mr Juncker was selected to become our next Commissioner? 

This approach is not going to be as helpful as it ought to be. The EU has got a degree of understanding—thanks, in part, to this Government—that it needs deregulation, but then it comes out with the refit process, which does not really deregulate. It gets an idea that it needs an industrial strategy that will promote competitiveness, but it views promoting competitiveness as standardisation and more regulation, and making that side of things more efficient rather than stepping back and allowing companies to get on with doing what companies ought to be good at doing. 

My concern is that the EU is only halfway there. This is a welcome step, but it does not go far enough and it is still very much within the confines of a bureaucratic approach to industrial policy—perhaps not so much beer and sandwiches at No. 10, in a 1970s way, but foie gras and Sauternes in the Commission building in Brussels. Nice though foie gras and Sauternes may be, I am not sure that is the way to make the EU competitive. 

12.47 pm 

Geraint Davies:  I am grateful to follow my colleague on the European Scrutiny Committee, the hon. Member for North East Somerset. He has a slightly different perspective on the value of laissez-faire—“Do nothing and everything will be all right on the night”—at a time when we face major trading challenges from China, India, Brazil and America. 

I will focus on the trading agreements, the earliest one being the comprehensive economic and trade agreement with Canada, which the Minister suggested was already in place. However, my understanding is that ratification in Canada will be on 25 September, and that the agreement will then be ratified by the European Parliament and subsequently come to our Parliaments. 

I know that the hon. Member for North East Somerset, like the Chair of the European Scrutiny Committee, the hon. Member for Stone (Sir William Cash), is very concerned about the issues of sovereignty and scrutiny, which is quite right. We have before us a strategy for an industrial policy, many elements of which I support, such as mainstreaming investment, a business-friendly environment and the internationalisation of EU firms. However, my concern is that behind those elements we do not have what has been made out by the Minister to be an opportunity for free trade and mutual advantage for everybody, but in fact a system for investor-state disputes where the rules of the game will be fixed so that they can be used to sue elected Governments if they bring in policies to protect the interests of workers, consumers and, indeed, industries themselves. 

We need to be cautious about that. We have begun to look at this issue in the European Scrutiny Committee. On a visit to Rome next week, I will bring it up at the presidency. It is of great concern that while we are here talking about industrial policy, we face a Trojan horse that will release corporate lawyers to sue Governments for their citizens’ money over changes to health law. For

example, Philip Morris has already sued Australia and Uruguay over plain packaging of cigarettes—something we are considering here. Big corporations, such as food manufacturers—in Britain, they are the biggest manufacturers—may sue over changes such as my proposal that, given the obesity epidemic, spoonfuls of sugar should be put on packaging so that people know how much added sugar products contain. That proposal may be subject to legal action, which would take place before arbitration panels, behind closed doors and in the darkness, rather than in the shining light of an open court. Those things are concerning. 

People are focusing on the transatlantic trade and investment partnership, but its Canadian precursor, the comprehensive economic and trade agreement, is the back door through which corporations can mount legal challenges and sue Governments over welfare rights or the impact of the social chapter on their profits. I appreciate that some people may not agree with the social chapter, but we live in a democracy, in which the balance of rights and of state and private ownership should be allowed to change in both directions. 

The issue of railways has been mentioned. In Europe, of course, there are more state-owned railways. Our railways have been privatised, but a future Government might choose to re-nationalise them or tender franchises on the basis of value for money. The east coast main line is making £700 million a year, so we might take the view that the public sector should be able to bid on a level playing field in the interests of the taxpayer. However, these agreements would rule out that sort of thing. 

With your indulgence, Sir Roger, I will quote the Council of Canadians on the example of water: 

“If you privatise a municipal water service, or you create a public-private partnership and then the citizens of that same municipality 10 years on decide…that they want to re-municipalise, then you open yourself up to an investor claim.” 

Although we may not agree on everything, I hope we all agree that it should be up to the citizens, based on our sovereignty, to decide the balance of state versus private ownership and management in what we regard to be the best interest of the nation. That balance may change from time to time, but it is not for big corporations—in particular, American corporations—to tell us what to do. 

My hon. Friend the Member for Hartlepool mentioned the NHS. One of my concerns is that we are on a one-way street. I have already mentioned a couple of examples—Philip Morris and the Lone Pine fracking company—where that is already happening. Another example is the Dutch insurer, Achmea, which sued Slovakia for reversing health privatisation. The company moved over to insurance and had a present value projection of profit; the Government there decided to move back to publicly run services, so the company said, “This is a breach of what we understood our profit rates to be”, and sued the Government. Argentina has just paid $1 billion to US and French companies for freezing utility rates for energy and water. Obviously, the Labour party has been talking about freezing energy prices, which is an option that is currently available, but may be put at risk. 

Whether hon. Members agree with proposals about the balance of the state and the private sector, the issue is about sovereignty and democracy. I am not opposing free or fair trade, but the set of rules that undermine the

objectives of the industrial policy that we are talking about. We should enable innovation and prosperity, and allow people to thrive, rather than create a situation where the weakest get weaker. 

I have several concerns. Obviously, it is important that we have our own rights and set our own taxes. There are parts of Europe—for instance, Greece—where there is no tax allowance for small businesses. What if you, Sir Roger, had a choice between being an employee and getting a €10,000 tax allowance, or running a business with no tax allowance? People are being driven away from innovation. 

That is a matter, to a certain extent, for the Greek Government, although they are being told what to do by the people who are lending them money. However, there is a risk of real problems without proper scrutiny of such trading agreements; we need transparency and the knowledge that they will work in our interest and not simply in the interest of large companies that want to increase profits and hide them elsewhere. We may find in Rome, Paris and Berlin that we are fiddling while our infrastructure burns. 

I do not want to keep the Committee much longer, but I have a couple more quick points to mention. On innovation budgets, I am glad to hear from the Minister about the success of our universities. The European Investment Bank has invested hundreds of millions of pounds in a second campus for Swansea university, which is important in the context of city regions and clusters, which the Minister was talking about. 

I have already mentioned that the Government should do more about procurement. I appreciate the Minister’s argument along the lines of “What about what you did last time?” but the Labour Government in Wales are doing much more. 

Overall I am not a Eurosceptic; we have a perfect economic relationship—access to a single market, benefits from industrial policy, our own currency and the opportunity to vary our currency through exchange rates, and the ability to set our own skills strategy. As my hon. Friend the Member for Hartlepool has said, we should do more to increase research and development and secure a future where Britain is a global leader, with high skill levels, high wages and employment success. 

12.57 pm 

Martin Horwood:  I want first to congratulate the Minister, whose earlier Gladstonian defence of the principles of free trade was impressive. In questioning the impact of the transatlantic trade and investment partnership on economies such as Italy’s, I was not denying the general efficacy of free trade, which, as a good Liberal, I generally support. Of course the impact on an uncompetitive economy depends slightly on why that economy is uncompetitive. In general, free trade and the removal of tariff barriers, and increasing competition, makes an economy more productive and competitive; but if there are deeply engrained structural barriers to competitiveness that might not be quite so true. 

The issue that I want to raise brings us back to a topic that has already been mentioned: the role of SMEs in developing European industrial policy. I raised an example in the Committee on 30 January, with the Europe Minister rather than with a Minister responsible for business and enterprise. Perhaps I shall have more luck

in getting an active Government response today, because I have a concrete example of how the failure to include smaller companies in European decision making leads to the wrong results in terms of competitiveness. 

The example involves a company in my constituency called Premiere Products, which produces hygiene and cleaning products and was affected by the revision of the biocidal products directive, which came into effect in September. The idea was very good; it was to improve the single market by allowing small companies in Europe such as Premiere not to go through 28 different regulatory and authorisation procedures to get the active ingredients in their cleaning products authorised for sale in the different countries, but to have a single authorisation process. 

Commissioner Potocnik assured us that that would lead to lower fees and costs for SMEs for gaining access to all the countries of Europe, which would mean more access for them and a more competitive situation, with similar environmental standards across Europe. Those would all have been great things. Somehow, however, what emerged at the other end of the detailed decision making and the development of the directive had almost precisely the opposite effect. The process of single authorisation ended up being so complex, burdensome and expensive that it excluded companies such as Premiere from the single market. 

Given that the directive applies to individual active ingredients and individual products, the burden and cost of complying with it could threaten Premiere’s viability as a small company. For example, the company reckons that the authorisation process for an active ingredient could lead to the production of a dozen lever arch files of paperwork to demonstrate the testing procedures, the safety, the environmental impact and so on. That is a much more onerous process than it has ever had to go through for any individual member state. 

Clearly, the process has not worked. I hope the effect will not be to put Premiere out of business, and the company is very resilient, innovative and competitive. However, if such companies are put at risk, the result will be less competition and less choice for, in the main, European customer companies, rather than consumers, in the case of products such as these. That will make Europe as a whole less productive. 

That is an example of why we should have SMEs round the table when directives are drafted and developed. Businesses are represented in the decision-making and legislative process in the EU, but they often end up being the big companies, with industrial sector representatives inevitably representing the bigger players in a particular sector, even in the research chemicals industry and on products such as these. 

Geraint Davies:  Will the hon. Gentleman go further and say that red tape is the friend of big business? When big business lobbies Europe to introduce intricacies for market entry—they have whole departments of lawyers—they know that these are barriers to small innovative companies gaining access to the marketplace. That is a perversity, and I support the hon. Gentleman’s proposal that SMEs are at the table and are directly asked how proposals would affect them. It is critical we do not listen just to the big players who are carving up the market. 

Martin Horwood:  The hon. Gentleman makes an important point. I am not going to get into trouble with some chemical industry body by saying that it sets out deliberately to skewer small companies, but the effect of not really being alert to the risks for smaller companies or to the complexities they may be burdened with is a case in point. 

That was one of many good points made in the Liberal Democrats’ European manifesto in 2014—obviously, not enough people read it, otherwise we would have had more European MPs now. However, the manifesto said that we should institutionalise representatives of small business in the European decision-making process through, in effect, European equivalents of organisations such as the Federation of Small Businesses. There would then be somebody there with the knowledge and expertise to understand the impact on smaller businesses of what was being drafted. 

I will be interested to hear the Minister’s response. I suspect he is sympathetic to the general principle, but I would like to see this theme taken up at a European level so that we can try to inject more of an SME voice. That is not an easy thing to do, because an average SME does not have thousands of hours to spare so that one of its staff can sit in European meetings. However, some means needs to be found to get SMEs’ voice more clearly heard in Europe. 

I would also be interested to hear whether the Minister would like to visit my constituency and meet Premiere Products at some stage so that he can understand in more depth and more detail how the directive is affecting companies like it right across Europe. 

1.4 pm 

Matthew Hancock:  This has been a broad debate. Let me quickly wrap up the issues. The debate has been useful in informing the Government’s approach to negotiations on this issue. There has been a remarkable degree of agreement—surprising agreement, in some cases—although there have, of course, also been differences, and I will come to some of those. I particularly enjoyed the Hayekian exchange between the hon. Members for Swansea West and for Cheltenham in support of competitive smaller businesses, as opposed to a focus merely on large corporations. It is important that we ensure that policy development, as a whole, in the European Commission and in the UK Government takes the need for small businesses into account. I am reluctant, though, to rely on SME requirements, because there is a huge difference between a business that employs, say, five people with a turnover of £100,000 and a business that employs 249 people and is at the top end of being called a medium-sized business. I would like to ban the term SME because the difference between those two types of company is too big. 

It is important not only to get representatives of small and medium-sized businesses but to get representatives of the very smallest businesses, which is practically difficult because such people generally do not have time to engage in the Brussels bureaucracy, but such engagement must be actively sought—hence the support for micro-business carve outs from regulation and the need to check that regulations work for small as well as medium-sized businesses. We need the Commission to get the approach right so that it is not more 1970s-style corporatism, but an intelligent approach to building employment and prosperity in the modern world. 

We have heard from both sides of the Committee about the importance of getting free trade agreements right, and we have heard support for free trade. As he is a Liberal, I thought that the hon. Member for Cheltenham might describe himself as a passionate supporter of free trade—I certainly am. Surely any self-regarding Liberal would be a passionate supporter of free trade. We also heard support for free trade from the Opposition, which is enormously welcome. A great tradition of this country is that we are a free and open trading nation. Of course we have to get the details right, and the example he raised precisely describes the difference, and the need to get the balance right, between harmonisation between different areas, which applies to TTIP as much as to the EU, and ensuring that standards are recognised. If we try to ensure that everyone’s existing requirements are taken into account, securing common standards through only harmonisation will lead to enormous over-burdensomeness, as opposed to recognition of common standards that will allow the standards that apply in one area also to apply in another. 

Geraint Davies:  I have mentioned mutual standards, which are being pressed by the Americans. One of the concerns that has been expressed in the Canadian negotiations is about procurement, whereby municipal governments that currently control food purchasing for schools would be undermined and subject to being sued. Incidentally, Jamie Oliver has also raised that issue. We need to look at the detail to ensure that the trade agreements do not drive down standards to the lowest level—by which I mean unhealthy levels for children in this case—and that we have standards that focus on quality and price, as the Minister mentioned earlier. 

Matthew Hancock:  There is no intention of that. I hope the hon. Gentleman lives up to the commitment to free trade when the crunch comes. On the Canadian free trade deal—I apologise if I did not get the form of words right—I meant to say that a trade deal has been agreed, although ratification is to come. An agreement has been reached in principle between negotiators on each side, and there will obviously be a ratification process. 

My hon. Friend the Member for North East Somerset set out an eloquent, important and powerful explanation of the caveats to industrial strategy and how they can inadvertently lead to a corporatist approach, as opposed to a competitive approach. It is vital that that is taken into account. He also criticised the EU for having a space strategy, but we have a domestic space strategy. In fact, the UK is one of the leaders in the global space industry. We have the second largest space industry in the world, and I am sure he would be very welcome on the Virgin flights. He would then be able to see Somerset from a different angle, and I am sure it would be glorious. 

Finally, the importance of energy and supporting energy-intensive industries has been mentioned and has broadly unanimous support. Both sides of the Committee spoke of the need to respect the competence of member states, which have the right to develop and deliver industrial strategy. That is an important principle in these negotiations. We will seek to ensure that the priorities I have set out are included, and central to that

will be ensuring that EU action supports competitiveness and our industry, and therefore supports the prosperity of the whole European Union. 

Question put and agreed to.  

Resolved,  

That the Committee takes note of European Union Documents No. 5489/14 and Addendum, A Commission Communication: For a European Industrial Renaissance, No. 13964/13 and Addenda 1 to 3, A Commission Staff Working Document: Member States’

Competitiveness Performance and Implementation of EU Industrial Policy, and No. 13966/13, A Commission Staff Working Document: European Competitiveness Report 2013: Towards knowledge driven reindustrialisation; and supports the Government in pressing the Commission to develop a roadmap for industrial competitiveness that focuses on open markets, competition, trade, better regulation and innovation. 

1.11 pm 

Committee rose.