Select Committee on European Union Appendices to the Minutes of Evidence


Memorandum by Confederation of British Industry (CBI)


  1.  The Confederation of British Industry (CBI) is the national body which represents the views of the business community to government in the UK and Europe. It is an independent, non-party political organisation funded by its members in industry and commerce. The CBI represents companies from every sector of the UK business, including:

    —  more than 250,000 public and private companies, over 90 per cent of them small firms with fewer than 200 employees; and

    —  more than 200 trade associations, employer organisations and commercial associations.

  2.  The CBI is widely recognised as Britain's business voice and is well placed to make representations on behalf of employers to the House of Lords European Union Committee, Sub-Committee F (Social Affairs, Education and Home Affairs).

Executive Summary

  3.  This paper presents UK business views on the issue of social policy in the European Union (EU). Social policy among Member States varies widely as it is determined by a nation's specific culture and history. For example, co-determination is a central part of the German system of industrial relations but has no place in Scandinavian or British systems. This presents Member States with very different challenges in their labour markets—which they must be allowed to tackle with tailored solutions. Once minimum standards have been introduced, the value of the EU lies in exchanging experiences and identifying commonalties—not in imposing a standard and ill-fitting social model from above.

  4.  Making reference to the discussions of Working Group XI on Social Europe this paper suggests that:

    —  the Working Group correctly identified that there was no case for extending EU competences;…

    —  …but care must be taken this is not accomplished through the back door by incorporation of the EU Charter of Fundamental Rights;

    —  members of the group worked hard to ensure no recommendation was made to extend QMV and this must be upheld;

    —  alternatives to legislation are valuable but should not be used indiscriminately; and

    —  the Social Dialogue process needs reforming.

The CBI believes that progress towards a strong and competitive EU can only be established through real consensus building between member states.

  5.  The CBI is committed to a strong, effective and competitive EU. Our members have experienced directly the benefits of the Single Market—for businesses and for consumers—and supported progress towards its completion. Members also recognise that the EU is more than just a single market—and that it has a role to play in creating high growth and prosperity. However, the Commission has acknowledged that progress towards the Lisbon goal—of making the EU "the most competitive knowledge-based economy in the world by 2010"—has not been entirely encouraging. If this goal is ever to become a reality—and the benefits it offers to EU citizens and business to be realised—then the EU must ensure that inappropriate social legislation is not introduced.

  6.  The reason EU social legislation is often inappropriate is that it fails to recognise the diversity of national systems. Overarching EU solutions—while essential in creating the Single Market—are often inappropriate in the area of employment. "One-size-fits-all" impositions for social policy prevent Member States from being able to respond to their particular labour market issues. EU action can restrict them from introducing the most appropriate policies—for example, to deal with unemployment amongst particular groups. This not only damages EU competitiveness but risks one of the key benefits that citizens have identified—a high level of employment. The role of the EU is not to impose uniform structures, but to add value through bringing together the diversities of Member States' traditions.

  7.  The core principles of subsidiarity and proportionality should ensure that social measures are only taken forward at an EU level where it can add real value. Subsidiarity is designed to ensure that local, tailored solutions, which are often more effective, are not superseded by less effective EU solutions. This would often be the case with social policy where the variety of national social policies and their specificity to the local labour market, often means that national and regional or sectoral solutions are the most effective level to take action. However, it often appears to be the case that mere lip service is paid to the principle of subsidiarity with regard to EU legislative proposals. Proportionality determines that the tool used should fit the objective required. The national context of labour market issues and requirements for flexibility mean that EU level legislative action is rarely an effective or sensible tool to address EU policy issues. These two principles of subsidiarity and proportionality should guide EU thought on social policy. This would determine that it would be inappropriate to extend EU competences or the use of QMV on current competences, but that progress could be made through alternatives to legislation, for example considered use of the open-method of co-ordination, and through reforming the social dialogue process.

  8.  The CBI therefore recommends that the proposals from the Working Group on Subsidiarity—which are a helpful step—should be fully heeded. It is important that the subsidiarity protocol of the Amsterdam Treaty is given operational form—perhaps through a clearly defined Charter of Competences, which determines what the EU should and should not do. UK business also advocates a firm commitment from the Commission to proportionality—to using the lightest possible tools—which should be accompanied by the creation of a independent body to undertake regulatory impact assessments for proposals.

The Working Group correctly identified that there was no case for extending EU competences . . .

  9.  The CBI welcomed Working Group XI's decision that the social policy competences of the EU should not be extended. The CBI was also pleased to note that, despite this issue having been given a high profile, the vast majority of group members, as stated in their written contributions, saw absolutely no case for extension.

  10.  The CBI believes there is no justification for EU competences in the field of social policy to be extended. Current exclusions—such as wage policy, freedom of association and the right to strike—are those where it is imperative that Member States have the freedom to determine individual, tailored policies relevant to their industrial relations models. EU-wide policies prevent national or even local solutions being developed and therefore do not only not add value but can prevent a country responding appropriately to, for example, its particular circumstances of unemployment. The CBI does not therefore see any benefit or necessity for extending EU competences in the field of social policy. We would however be interested in following up the Minister for Wales Peter Hain's suggestion that consideration be given to returning some areas of shared competence to the Member States, eg collective representation.

. . . but care must be taken this is not accomplished through the back door by incorporation of the EU Charter of Fundamental Rights

  11.  Although the discussions of group showed that there is neither justification nor demand to increase EU competences in the social field, the danger remains that this will be accomplished through incorporation of the EU Charter of Fundamental Rights into the Treaty. Many of the issues, such as the right to strike and unfair dismissal, specifically excluded from EU competence due to the inappropriateness of EU action in this area, are included in the Charter. Incorporation could result in the EU gaining competence in these areas—although Convention discussions determined that this is inappropriate. If the EU was to ever gain competence in these areas it should do so through negotiations between democratically-elected Governments—and not gain them through the back door as a side effect of making the Charter legally binding.

  12.  Incorporation also risks undermining Directives that have been built on agreement between Governments and that allow some national flexibilities in implementation. For instance, the Charter's article on non-discrimination prohibits all unfair treatment without the caveat, widely recognised in EU and domestic law, that "indirect" discrimination is sometimes justifiable on objective grounds. This could lead to EU and domestic discrimination law being rewritten according to the Charter rather than national and EU policy preferences. Incorporating the Charter also has a number of other undesirable effects, such as the possibility of legal uncertainty created by confusion over the jurisdictions of the European Court of Justice and the European Court of Human Rights.

  13.  The CBI has been investigating current proposals to incorporate an amended Charter, containing new horizontal articles designed to prevent the transfer of competences. At present we are unconvinced this would be accomplished. UK business therefore recommends that the current situation of a declaratory Charter, which business welcomed as a way of raising the profile of Fundamental Rights in Europe, should not be altered.

Members of the group worked hard to ensure no recommendation was made to extend QMV and this must be upheld

  14.  Some Convention representatives favour extending QMV on social policy. However, the CBI remains in strong opposition to any such move. Of particular concern is the extension of QMV to areas such as those covered by article 137, free movement of workers (article 42), professional training (article 47.2) and discrimination (article 13).

  15.  These cover the key areas which have developed out of different histories and cultures. Member States therefore have fundamental differences in approach—which allow them to craft effective policies for their particular traditions. Extending QMV would mean these genuine differences, together with the tailored and therefore most effective responses, would simply be outvoted.

  16.  While Working Group XI correctly made no firm recommendation of extending QMV on social policy, this was only due to the hard work of a number of members of the group. The CBI is aware that some members of the Convention are likely to raise the issues again. Many argue that enlargement requires QMV to ensure Europe can function. While the CBI does recognise concerns over the inefficiency of European institutions, UK business does not believe the way to solve this is by overriding genuine differences in national preferences. The CBI is particularly concerned that, despite the lack of consensus within the group, its final report made strong "suggestions" that QMV could be envisaged on articles 13 and 42 and parts of 137. QMV cannot be envisaged on these articles which must be dependent on agreement between Governments.

Alternatives to legislation are valuable but should not be used indiscriminately

  17.  The CBI strongly endorses the Commission's use of alternative methods to legislation such as "the open method of co-ordination", co-regulation and self-regulation. In many areas, benchmarking, exchanges of experience and peer review are more valuable and effective tools than legislation because they recognise that different countries face different problems that are not susceptible to top-down solutions.

  18.  In particular, the CBI has seen real added value through the flexibility of the open method of co-ordination as this has been applied to the fields of stock options and health. CBI members also highly value the Employment Guidelines as they allow Members States to determine tailored solutions for important social policy areas.

  19.  However, there are risks that Working Group XI's recommendation to incorporate the open method into the Treaty would undermine its benefits. The value of the open method lies in its flexibility, which could be diminished if incorporation turns it into a legal standard rather than a method. Also, it is vital that the open-method of co-ordination is not indiscriminately applied—the merits of applying the open method must always be considered on a case-by-case basis and cannot simply be applied wholesale to new areas.

  20.  The open method is not the only alternative to legislation and the Commission should seek to promote, for example, exchanges of experience as valuable actions in their own right and negate the common perception that these are somehow second best or a prelude to legislation.

The Social Dialogue process needs reforming

  21.  The CBI believes that there is value in social dialogue where objectives and roles are well understood. It recognises that in some circumstances where the EU should legislate, there is value in social partners negotiating the details, drawing on their detailed knowledge of conditions and concerns within actual companies and workplaces.

  22.  But such negotiations should follow on from rather than pre-empt a mandate from the Council of Ministers, and should be freely entered into.

  23.  The CBI also believes that there can be a useful role for more general social dialogue discussions—for instance on the general principles of policies to combat unemployment, provided that these discussions are focused on a real exchange of views and analysis. Any agreed statements should record only those areas where there is genuine agreement. Areas of disagreement should be noted, but attempts to declare a non-existent consensus devalue the whole process.

Human Resources Directorate

February 2003

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