3 Undeclared work
| Committee's assessment
| Legally and politically important
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| Committee's decision
| Not cleared from scrutiny; further information requested
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| Document details
| Draft Decision on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work
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| Legal base
| Article 153(2)(a) TFEU; co-decision; QMV
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| Department
| Business, Innovation and Skills
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Summary and Committee's conclusions
3.1 The Commission defines undeclared
work as "any paid activities that are lawful as regards their
nature but not declared to public authorities, taking account
of differences in the regulatory systems of Member States".
All forms of undeclared work reduce the tax base and diminish
public revenue derived from income taxes and social security contributions.
In addition, undeclared work is often equated with precarious
forms of employment, poor or unsafe working conditions, and unfair
competition. The larger the shadow economy, the less likely the
EU and Member States are to achieve the target of a 75% employment
rate for those aged between 20 and 64 set out in the EU's Europe
2020 Strategy. The Commission believes that high levels of undeclared
work will also affect other EU policy priorities, notably the
drive towards fiscal consolidation, the creation of good quality
and sustainable jobs, and the proper application of EU and national
employment, labour, health and safety, and social security laws.
It has therefore proposed establishing an "EU Platform"
— a formal mechanism at EU level comprising national enforcement
authorities designated by each Member State, the Commission and
various observers (including labour and industry representatives
and the International Labour Organisation) — to strengthen
cooperation in preventing and deterring undeclared work.
3.2 The EU Platform would promote the
exchange of information and best practice, develop expertise and
analysis, and coordinate cross-border operational action. The
Commission considers that existing voluntary cooperation between
Member States is patchy and piecemeal. It has therefore proposed
that participation in the EU Platform should be mandatory for
all Member States.
3.3 Our Forty-ninth Report, agreed on
7 May 2014, provides a detailed overview of the draft Decision
and our reasons for considering that it does not comply with the
principle of subsidiarity because the Commission has not demonstrated
either that action at EU level is necessary or effective to achieve
the objective of tackling undeclared work, or that mandatory participation
in an EU Platform is justified. Our Report includes a draft Reasoned
Opinion which was debated and agreed to in the House on 9 June.
3.4 In addition to our subsidiarity
concerns, we also asked the Government to provide:
· a more detailed analysis
of the scope of the legal base proposed by the Commission —
Article 153(2)(a) of the Treaty on the Functioning of the European
Union (TFEU) — and the extent to which it may be used to
require, rather than merely to encourage or promote, certain forms
of cooperation; and
· a more up-to-date assessment
of the size of the UK's shadow economy, as well as the Government's
view on the accuracy of the Commission's data concerning the scale
of undeclared work across the EU and the significance of any cross-border
aspects.
3.5 In this, our second Report on the
draft Decision, we set out the response provided by the Minister
for Employment Relations and Consumer Affairs (Jenny Willott)
and her progress report on negotiations.
3.6 The Minister's Explanatory Memorandum
questioned whether Article 153 TFEU "provides a sound legal
basis for a mandatory requirement for Member States to participate
in a Platform" and whether participation on a mandatory basis
would be consistent with the principle of subsidiarity. Both
concerns remain and would not, in our view, be resolved simply
by specifying that participation in the tasks to be performed
by the EU Platform is to be made voluntary. Indeed, this outcome
appears even more unsatisfactory. Member States would shoulder
all the expense and inconvenience of attending meetings of the
EU Platform without reaping any of the benefits that may be derived
from collective action. We think it highly likely that mandatory
participation in the Platform will, in practice, entail some degree
of active participation in the various activities envisaged in
the draft Decision. The Minister indicates that the Council Legal
Service has issued a written opinion on the draft Decision. We
ask her to share with us the gist of the advice given, particularly
as regards the scope of the legal base proposed by the Commission
and the extent to which it may be used to require, rather merely
to encourage or promote, certain forms of cooperation.
3.7 We note, with considerable concern,
the Minister's belated assertion that "the UK's JHA opt-in
is triggered as, for example, the proposal mentions the potential
involvement of the police in any future enforcement action".
A reference to the police, as one of a number of national enforcement
authorities which may have some responsibility for tackling undeclared
work, is included in recital 13 to the draft Decision, but does
not appear in the operative Articles. The Minister will be familiar
with our position that the UK's Title V (justice and home affairs)
opt-in does not apply in the absence of a Title V legal base.
We ask her to:
· clarify which provisions
of the draft Decision create legally binding obligations in the
justice and home affairs field;
· confirm that the Government
is pressing for the inclusion of a Title V legal base and clarify
which Treaty Article/s it believes should be cited; and
· explain, in light of the
policy set out in the letter of 3 June 2014 from the Home Secretary
(Mrs Theresa May) and the Lord Chancellor (Chris Grayling), whether
she considers the JHA provisions contained in the draft Decision
to be purely ancillary and, if so, whether the UK would consider
itself bound by them in the event that there is no Title V legal
basis and the UK does not opt in.
3.8 We also ask the Minister to comply
with existing practice on the opt-in under which the Government
has undertaken to inform Parliament of the date on which the three-month
opt-in period expires and to set out the factors that the Government
will take into account in reaching its opt-in decision.
3.9 We are grateful to the Minister
for providing more up-to-date information on the size of the UK's
shadow economy. As requested in our earlier Report, we also ask
for her view on the significance of the cross-border dimension
in tackling undeclared work and securing more effective enforcement
action.
3.10 Pending the Minister's reply
on all these matters, the draft Decision remains under scrutiny.
Full details of the
documents: Draft Decision
on establishing a European Platform to enhance cooperation in
the prevention and deterrence of undeclared work: (35967), 9008/14,
+ ADDs 1-2, COM(14) 221.
Background and previous scrutiny
3.11 The EU Platform proposed in the
draft Decision would have three objectives:
· improving cooperation between
Member States' different enforcement authorities at EU level to
prevent and deter undeclared work more effectively and efficiently;
· strengthening the technical
capacity of Member States' enforcement authorities to tackle cross-border
aspects of undeclared work; and
· increasing public awareness
of the need for action and encouraging Member States to intensify
their efforts to tackle undeclared work.
3.12 The draft Decision identifies a
series of tasks to be undertaken by the Platform which are described
in our Forty-ninth Report.
3.13 The legal base cited in the draft
Decision is Article 153(2)(a) TFEU which provides for the adoption
of measures "designed to encourage cooperation between Member
States through initiatives aimed at improving knowledge, developing
exchanges of information and best practices, promoting innovative
approaches and evaluating experiences, excluding any harmonisation
of the laws and regulations of the Member States". EU action
based on Article 153(2)(a) must concern EU social policy objectives,
which include working conditions, the integration of individuals
excluded from the labour market, and measures to combat social
exclusion.
3.14 The Government told us that it
was "not yet persuaded that Article 153 provides a sound
legal basis for a mandatory requirement for Member States to participate
in a Platform".[3]
We shared the Government's concern and asked for a more detailed
legal analysis of the scope of the legal base relied on by the
Commission.
3.15 The Government also told us that
the Commission's Impact Assessment accompanying the draft Decision
lacked "the empirical evidence base or analysis of structural
failure at Member State or Union level which would support a case
for intervention".[4]
The Minister cited data in the OECD's Employment Outlook 2005
which estimated that the informal economy within the UK only accounted
for 1.7% of GDP, one of the lowest levels amongst the countries
sampled. We noted that the OECD estimates preceded the economic
and financial crisis and, if accurate in 2005, were unlikely to
be so now. More recent data reproduced in the Commission's Impact
Assessment, while hedged with numerous caveats, revealed a different
picture in the UK and across the EU as a whole.[5]
We therefore asked the Minister for a more up-to-date assessment
of the size of the UK's shadow economy, as well as her view on
the accuracy of the Commission's data concerning the scale of
undeclared work across the EU, and the significance of any cross-border
aspects, as this, too, would be a key factor in determining the
need for, and proportionality of, EU action.
The Minister's letter of 16 June 2014
3.16 The Minister first addresses our
concerns regarding the use of Article 153(2)(a) as the legal base
for the creation of an EU Platform requiring the mandatory participation
of Member States:
"Whilst we have highlighted our
concerns about mandation — and these concerns remain — we
have secured in negotiation an understanding that any measures
proposed by the Platform must remain within the scope of Article
153(2)(a) and, therefore, solely for the purposes of fostering
cooperation. It has also been clarified that while participation
in the Platform would be mandatory, participation in the specific
activities which result, such as cross-border inspection activity,
would not."
3.17 She suggests that the voluntary
nature of the tasks to be performed by the EU Platform lessens
the Government's primary concerns relating to subsidiarity. However,
she adds a further dimension:
"We also think that the UK's JHA
[justice and home affairs] opt-in is triggered as, for, example,
the proposal mentions the potential involvement of the police
in any future enforcement action."
3.18 Turning to more recent data on
the size of the UK's shadow economy, the Minister explains:
"By its very nature the data available
on the shadow economy is patchy. We have, however, assessed an
OECD study undertaken in 2011 which shows that the UK's shadow
economy remains at around 2% of GDP. Overall, though, the
UK still has one of the lowest incidences of shadow economies
compared to other Member States. As I highlighted in the Reasoned
Opinion debate, we do take this seriously and have in place enforcement
and deterrent measures to tackle the shadow economy."
3.19 The Minister notes that the Presidency
is "pressing hard to secure agreement for a General Approach
at the earliest opportunity". She adds that the UK was able
to form a blocking minority to prevent the Presidency from seeking
agreement at the Employment, Social Policy, Health and Consumer
Affairs (EPSCO) Council on 19 June on the grounds that further
time was needed to consider the full implications of the proposal,
including a written opinion issued by the Council Legal Service.
She continues:
"The Commission has conceded that
there were still some issues that needed to be addressed and that
it could accept some additional text that would clarify the limitations
of the future initiatives of the Platform. The Government
will now seek to ensure this further text addresses our concerns
set out above."
Previous Committee Report
Forty-ninth Report HC 83-xliv (2013-14),
chapter 1 (7 May 2014).
3 See para 10 of the Minister's Explanatory Memorandum. Back
4
See para 23 of the Minister's Explanatory Memorandum. Back
5
See Annex II of ADD 1, pp.47-50. Back
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