Examination of Witnesses (Questions 1
- 19)
MONDAY 18 JUNE 2007
Lord Williamson of Horton, GCMG, CB
Q1 Chairman: Lord Williamson,
thank you very much indeed for coming to help us with our inquiry.
This is our first session effectively and the aim of the exercise
is to try to produce a report at some time, let us say, in November
after the Commission has come forward with its conclusions as
to where the single market can be developed further and better.
What we are seeking to do at this stage is to focus to some extent
on the energy sector, the telecommunications sector and the financial
services sector. We would welcome anything that you wish to say
in answer to the first two questions. What guidance would you
offer this Committee as to where we should be looking? To what
extent have the goals of the single market changed since its inception?
What has been the reason behind the change? Secondly, what have
been the key drivers behind the internal market project to create
a single market?
Lord Williamson of Horton: Thank you very much
indeed for inviting me. I see the questions have a general heading
at the top which is "The single market—past, present
and future". I thought that was quite a lot to respond to.
I am rather better on the past than the present and the future
but nonetheless I will do my best to help the sub-committee. On
the first question about the change, if any, in the goals of the
single market, I believe there have been quite significant changes
but we should not draw the conclusion that what has been achieved
is, as it were, dead wood. I am a great believer in the view that
what has happened should continue to run at cruising speed. I
am very keen on that. We do not have to necessarily intervene
in everything because a few hundred million people are operating
the single market on the basis that has been decided so far. I
believe that there are changes in the goals of the single market
and particularly in my view it has been added to, not just changed,
with the passage of time. I think you are already running on those
lines in what you have said. Why is that? First, it is because
of the big change in circumstances compared to the situation when
it was launched. You can think of obvious changes like movement
of labour, which is quite different from what it was, much bigger
and sometimes more difficult; the attention to the environment
and big changes also in such things as the scale of retailing.
We did not have giant supermarkets in 1968 when we first had a
Customs Union and we did not have such big ones when we came to
the single European Act in the eighties. Secondly, I think there
is much greater recognition of the potential effect on the core
single market of action or lack of action elsewhere. I know you
are on this point but it is for me a key point. For example, the
extent of liberalisation in energy markets and the telecoms revolution
with online purchasing and all these changes. These are the reasons
why there are changes, not political decisions in a sense. It
is just that the world has changed and we need to keep up with
it.
Q2 Lord Powell of Bayswater:
If you were in our place sitting here, what would you focus on?
Obviously the inquiry cannot focus on the whole single market,
past present and future. If you were looking at one of the key
issues you think we ought to ferret out, particularly for the
next phase, what would you identify?
Lord Williamson of Horton: I think in this case
the second of the two documents by the Commission is quite helpful.
It does identify a number of areas where it is important to look
at the changes or the additions to the situation since the first
decisions were taken. That does of course include the points which
you seem to be establishing now: the areas like the public utilities,
not just energy but the other public utilities such as electricity,
gas, mail and so on, where progress is not always very fast and
where the element you are coming on to of economic nationalism
is well known to remain in some parts of the European Union. Therefore,
the progress towards getting a genuinely open market is much more
difficult in those areas. That is a very important point. A key
further point is to look at areas where we have made progress
but not enough, that we are running but not well enough. Obviously
financial services are not complete. We congratulate ourselves
that we have now done something on financial services but obviously
not enough. Particularly in view of the importance for the United
Kingdom, I think it would be good if this Committee could look
at that. The third element is to look at areas where the nature
of the original decisions may not fit the current circumstances.
The form of regulation may be too tight now we have changed quite
a lot to more open systems of mutual recognition and so on. The
fourth element is that there are areas where the European Union
can have a big influence outside its borders by being a global
setter of standards and quality arrangements and so on. I think
that is quite important because it is valuable for our economies
if we can influence what is done elsewhere.
Q3 Lord Powell of Bayswater:
Do you think there is anything to be gained from pursuing Mrs
Merkel's proposal, which has gone quiet recently, of trying to
negotiate common standards between Europe and the United States?
Lord Williamson of Horton: I am somewhat hesitant
about whether that would lead to very much in the near future.
I think it would be very difficult to do. If it was a perfect
world, that would be lovely but we have to concentrate on where
we are most likely to get results. I think that would prove a
difficult task. If this sub-committee can achieve it, you will
go down in future as one of the most famous sub-committees, but
I doubt whether you will.
Q4 Lord Haskel: Who do you
think have been the main beneficiaries of the single market and
do you think this is likely to change?
Lord Williamson of Horton: Obviously consumers
of goods and services are the first main beneficiary. On the principle
which Adam Smith was very keen on, opening up into a competitive
market, which is what has happened to a considerable degree, consumers
are beneficiaries. More broadly, the economy as a whole is a beneficiary.
I see the Commission quote 2.2 per cent additional GDP growth
for the period up to 2006. I do not stand by that figure myself.
It may vary a bit but it seems to me fairly obvious that there
has been additional GDP growth as a result of opening up the markets
in the way we have done it and therefore that spreads everywhere.
Obviously there are some who are beneficiaries in a rather more
simple sense—that is, holiday makers and people like that
who are happy usually with the arrangements by comparison with
the miserable time we used to spend trying to cross frontiers,
get our currencies and all the other things that we used to have
to do. Will it change? It will change to the extent that the work
which you and others are doing to concentrate on getting more
open and fairer markets in areas such as energy, telecoms and
so on means there will be new beneficiaries as a result of that.
The basic, internal, single market has benefited those I have
mentioned.
Q5 Lord Haskel: A corollary
to the beneficiaries is those who have suffered. Do you think
for instance that some of the newer members have suffered because
some of their people come to Britain, Germany and France? Their
skilled people are coming to these countries and doing very well,
but now the new Member States are beginning to say that they are
suffering because of the lack of skills. They are losing valuable
people. Do you think that small companies are suffering because
now the market is so big. It is being dominated by large companies.
You yourself mentioned supermarkets and retail organisations that
are now larger than ever. Do you think that there is anybody on
the other side of the coin who has suffered?
Lord Williamson of Horton: If you make a big
change, as we have made in the European Union, by moving from
a system where national frontiers were very obstructive, as we
know they were for a long time, and you open it up, of course
there will be some people who will suffer in the short term because
there is increased competition; there are difficulties arising
from movement of labour. It does not operate as smoothly as theoretically
it might. That is obviously the case. Also existing interests
respond because they do not like some of the things that are happening.
As it happens I was in France at the time of the Maastricht Referendum
and I asked all my neighbours in France were they for or against.
Some were for; some were against. My next door neighbour said
he was against the Maastricht Treaty. I asked him why. He was
a Frenchman. He said, "I am against the Maastricht Treaty
because of Portuguese shoes. There are far too many Portuguese
shoes." Vested interests are going to suffer. He had to give
up his shoe business and set up a duck business. People have to
adapt. There are difficulties because the change is quite fundamental
but we are creating more wealth. It is difficult to handle the
run in and the changes in the interim.
Q6 Lord Haskel: Do you think
we need some mechanisms to help handle this change, to help people
who are suffering, if you like?
Lord Williamson of Horton: We do not have very
many mechanisms, although the national governments have some mechanisms
of course. There are a number of occasions where there are various
forms of aid or intervention. If you look at all this you can
find quite a number which are intended to smooth off the transition.
Those do exist. Whether they are fully efficient you can probably
inquire into. The Common Market is not a roller coaster. It is
sensitive to changes in public opinion and the difficulties of
public opinion. It is possible to have temporary arrangements
but they should be time limited, in my view. Otherwise we will
not achieve what we are trying to do.
Q7 Baroness Eccles of Moulton:
Have there been any more key barriers in the past? To what extent
have the barriers changed?
Lord Williamson of Horton: Of course there are
definitely a number of key barriers which existed in the past.
Some of them still exist. They may not apply quite so directly
to movement of goods and services but they still exist. The sorts
of restrictions which I think were important and still are occasionally
are, for example, those national restrictions on the establishment
of businesses. That is true in the older Union and also in the
new Member States for reasons I can understand. They have difficulty
and they do maintain a number of restrictions. National quality
standards are still maintained sometimes, whether legally or illegally.
We know that is the case. There are currency variations which
can make things difficult from time to time. Then there are the
other elements of what I call national, commercial defence of
which the most obvious is national aids. There always have been
lots of national aids, concealed or not concealed. Certainly when
I was working in the European Commission, which was a very long
time ago, if you saw the minutes of the Commission usually the
biggest single element in the minutes was a list of national aids
against which the Commission was either taking action, launching
action or trying to persuade the governments to change. There
have been a lot and sometimes they have distorted markets without
any doubt. The idea of national, commercial defence is still there.
Are they going to be still there? They are going to be there I
think in the areas which you are looking at, the newer areas for
opening up such as energy, telecoms and so on. Commercial defence
on a national basis will still be played out. Those are new barriers.
I do not think they are necessarily changes. They just appear
in another sector, not directly in trade in goods and services.
Q8 Baroness Eccles of Moulton:
Would you think that the Commission's minutes would be featuring
them as largely as they have been in the past?
Lord Williamson of Horton: If I make a guess,
I do not think there will be so many entries but some of them
may be more important because we are dealing with big, financial
issues. There is a lot of money at stake in these areas.
Q9 Lord Mitchell: I would
like to ask questions regarding delivering the single market.
First of all, what are the institutional constraints on it? Does
the Commission have the right tools to deliver and are the current
remedies available to the Commission to enforce the single market
adequate?
Lord Williamson of Horton: The Commission does
have the competition policy. This is an area which falls within
the Commission's own competence. Therefore, to the extent to which
they use the competition policy strongly, they can reduce some
of the difficulties which might arise in the delivery of the single
market. If they are tough enough they can knock over some of the
resistance to the full single market. Otherwise, what the Commission
has is of course the power of proposal but it is a little more
difficult to operate than in the past, first because it is more
complex in 27 than it was in a smaller number of countries to
get it through, just because of the diverse circumstances which
you are dealing with. I still believe that in some ways the development
of the new areas—I will not quote them all; I can add a
few to those you have mentioned—they are slightly running
ahead of the Commission. That is to say, the possibility for the
Commission to achieve significant progress on opening up markets
and free movement across countries is not quite sufficient to
catch up with the new proposals on things like environment, outsourcing,
all the things that are newer than they were when the system was
set up.
Q10 Lord Whitty: At any given
stage of the development of the internal market there are those
who say we have not gone far enough and those who say we have
gone too far. On the first, there are those who argue that the
absence of tax harmonisation has been a significant problem. Have
you any comments on that? Also, areas like the labour market.
Despite the apparently free movement of labour to a large extent
and the social chapter, there is not really a single labour market.
Even though consumers have benefited, there is not a completely
harmonised system of consumer protection either. Are any of those
areas where you think we should pay some attention or do you think
they are such political no nos that we should not touch them?
Lord Williamson of Horton: Starting with tax
harmonisation, I am tempted to say I am not an academic. If I
was an academic I could show why it be a jolly good idea to have
tax harmonisation. I really do not think that tax harmonisation
is going to be delivered unto you, if I may say so. It is unrealistic
to think that a perfect model can be achieved there. That is the
way it is because of the views of the Member States. It is still
worth remembering that an element of tax competition does exist.
That is sometimes forgotten. That is to say, if they get too far
out of line even on things like excise duties, goods start to
move for example from the Republic of Ireland to Northern Ireland
or Northern Ireland to the Republic—I forget which at any
one time—but obviously there is an element of tax competition.
If you do not get roughly into line you are liable to lose business.
That is worth keeping in mind. On the labour market, there are
things in the labour market which are not terribly good. That
is to say, we still have a lot of differences between the labour
markets for all sorts of reasons such as whether they have a 35
hour week. I doubt whether they do in France, but there are laws
about it and things of that kind which are completely different
between the Member States. On the other hand, in my European lifetime
which is not very long, I think the labour market has become quite
a bit more mobile, both at the top and the bottom. That is to
say, for professional classes and so on, there is more decision
either of harmonisation or mutual recognition. Architects, doctors
and so on seem to spin about the place all over now without very
great difficulty and of course, with people who move at the bottom
end on low wages, such as those coming in from Eastern Europe
here, there is movement. Where there is not a great deal of movement
is in the middle block so we do not have full labour market mobility.
That is quite clear. People do not move very easily. They do not
move as easily as in the United States for example. It is a gradual
evolution on the labour market and if we handle the material properly
and do not create new problems ourselves it will continue to open
up.
Q11 Lord Whitty: At the opposite
end, there were a few articles in the press a few months ago saying
that economic nationalism was making a revival in Europe and in
a number of Member States. Do you think that is true? Do you think
it is a phenomenon we should take seriously?
Lord Williamson of Horton: I think it is a serious
point. Economic nationalism and national champions and so on are
definitely serious points. I would not believe for one moment
that they had just gone away. I do not think so. Take a trip round
France and talk to a few Frenchmen and you will find it has not
quite gone away. I do think that it is less than it was and is
fading. An example is the airlines. How on earth it came about
I will not analyse but you will recall how important and almost
immovable the national airlines were in the past. They felt they
had their place and the rest had to get in line. I am not blaming
them; that is the way they saw the world. I have never forgotten
the fact that I did 108 flights from Brussels to Strasbourg and
there was never more than one airline on that route when I was
there. Every time I got on the plane they announced, "Thank
you for choosing this airline." Things have changed, if I
may say so.
Q12 Lord St John of Bletso:
On the issue of tax harmonisation, obviously tax issues are a
national vested interest and one has to draw the distinction between
tax coordination and tax harmonisation. To what degree do you
believe that there will be a more coordinated effect and more
impetus towards tax coordination? On the issue of the mobility
of the labour force, we have seen a huge influx of Polish workers
coming into the United Kingdom, particularly in the building sector.
My interest is on the minimum wage because it is all jolly well
having European directives but to what extent are these directives
effective? There does appear to be a situation where there is
huge polarisation between the wages that are paid in various countries
and lack of effective policing of the minimum wage, particularly
when it comes to immigrant labourers coming into the United Kingdom.
Lord Williamson of Horton: To take the tax coordination
point first, I think there are areas where it would be in the
interests of one or more Member States to have greater tax coordination
on some things. The one I think of in particular is excise duty.
The reason I mention that is that there are variations in excise
duty which can of course be justified on social grounds—we
do not want too many smokers and so on. Where the variations are
very great, the incentive to fraud is equally great. An awful
lot of money can be made on the difference between excise duty
in one Member State or another on products such as cigarettes,
as we all know. It may not be possible but some tax coordination
in some of the areas where there are big differences—I quote
excise duty specifically—would probably cut out quite a
bit of fraud and might even increase the budget revenue of the
European Union quite a bit because it is money lost. On the other
point about the minimum wage and labour mobility, the question
whether there is a minimum wage has been a regional or national
decision. I have always been in favour of it myself. The minimum
wage is in effect and it is difficult to implement where you have
a big change with a large number of new workers moving in and
so on. In so far as it is bypassed or generally speaking ignored,
which does happen from time to time, that is a very bad thing
because it does go against the operation of a system which is
intended to be and indeed is fair, in my view. I do not see how
you can improve that very much except on the ground. You cannot
improve it in Whitehall but on the ground it probably could be
improved to some degree.
Q13 Lord Lee of Trafford:
On the question of the single currency, what is the significance
of the single currency to the operation of the single market?
Have we, the UK, done rather better outside the single currency
than perhaps you might have anticipated?
Lord Williamson of Horton: The first question
is quite easy, I think. The single currency has of course done
one thing. It has made life easier for travellers. Secondly, it
has made life easier for a lot of businesses that are trading
within the zone. It is quite easy to handle things in euros and
that is the way it is. You can see how popular that is in the
sense that it so happens that, although I am Convenor, I am going
to be allowed one holiday this year. I am going to Croatia and
it says, "Do not bother to bring anything except euros."
There is a practical advantage there. It has definitely increased
transparency. If you are operating within the eurozone, you can
make a much better and quicker comparison of prices and costs
and that is an advantage. I will not overdo it. Most of us are
capable of running a calculating machine and finding the difference
between pounds and euros, but nonetheless it is a slight advantage.
On the other hand, it does remove some flexibility which used
to exist because of the movement within the zone in the currencies
of the Members within the zone—i.e., does one size fit all?
As to whether it s a greater problem than it was at the beginning,
I do not think so. The eurozone has got used to running itself
very quickly. It has this advantage for some of the economies
in the short term. Obviously they believe in the medium and longer
term it is not going to be a great disadvantage. I do not think
it should worry us too much. We seem to be operating pretty well
at the moment. I am not unhappy about the way we are operating.
For businesses crossing over from the eurozone to the sterling
zone, I do not think it creates too big a problem.
Q14 Lord Powell of Bayswater:
Some time ago there was a lot of pressure from the wealthier European
countries to level up social burdens in order to undermine the
competitiveness of the newer Member States. That was a barrier
to the effectiveness of the single market. Do you feel that is
still an important barrier?
Lord Williamson of Horton: I do not think you
get great success by trying to level up or down between various
Member States. In the end I do not think that makes very much
difference. If you want in the short term to take certain measures
which you think may help either existing interests in Member States
such as our big retailers who are active in eastern Europe or
the new Member States, maybe that might be possible but I do not
honestly think you gain very much by trying to level off the market
yourself. It will level itself off over a period of time with
a few difficulties.
Q15 Lord Powell of Bayswater:
It was one of the reasons why we originally kept ourselves out
of the social chapter.
Lord Williamson of Horton: It was indeed, yes.
Q16 Lord Powell of Bayswater:
You would not think it necessary to take a similar decision if
you were looking at the market today?
Lord Williamson of Horton: Probably not but
that decision was taken and then it was overturned of course later
on.
Q17 Lord Haskel: What do you
think has been the impact of the recent enlargement in the European
Union on the single market?
Lord Williamson of Horton: I feel tempted to
say that the first impact of enlargement is that the single market
is bigger. I welcome that. That is very important because the
growth potential of the eastern European countries is great. We
tend to slightly underestimate, in my view, the growth potential
of eastern Europeans. We always have a great habit of talking
about China and the other tiger economies of south east Asia.
In a period when those tiger economies were growing very fast,
in money terms they grew much slower than the European Union.
Eastern Europe has a very important growth potential. It is true
that because they are new entrants their capacity to adapt to
the various regulations, either because of their own internal
procedures or because their economies in certain sectors cannot
really adapt that quickly, we are not going to get an absolutely
level playing field on day one, two or three. I am fairly well
convinced that we will get it thereafter. There is clear significance
in the type of progress that has been made in countries such as
the Czech Republic and Hungary already. They are not a homogeneous
group. Bulgaria and Romania are going to take quite a long time
to have a system where we are operating on what everybody would
consider a level playing field. I cannot see it happening that
quickly. There will be dents in the single market but we just
have to accept that, in bringing in countries with a completely
different standard of living and a different way of doing things,
it is going to take a bit of time.
Q18 Lord Haskel: Do you think
it is going to be as effective as it has been, for instance, over
the last 25 years in countries like Greece, Spain or Portugal?
Lord Williamson of Horton: We cannot judge very
well the last two, Romania and Bulgaria. It is difficult to make
a judgment about them because their standard of living is considerably
lower. There are a lot of other problems like the huge agricultural
sector in Bulgaria and so on. On the preceding group which includes
countries such as the Czech Republic, Hungary, Poland, Slovenia
and so on, the progress looks pretty fast. If I had a lot of money,
which I do not, I would not mind investing in those countries
today.
Q19 Baroness Eccles of Moulton:
If we can distinguish between a market and a non-market, how effective
would the single market be in dealing with such matters that are
going rapidly up the agenda like climate change?
Lord Williamson of Horton: It is a little optimistic
to think that in itself it is an effective mechanism for dealing
with problems like climate change. Indirectly, it can be helpful
to reaching decisions we need to take in these other sectors.
For example, the single market means that we are going to have
considerable economies of scale which could be useful, even on
the simplest things like providing the new technologies and benefiting
from the new technologies which are being developed fast for environmental
reasons. That is where it is good that we have the capacity to
do something in that sector. It can also help in the exchange
of good practice on issues such as solar energy. We do not seem
to be desperately rocketing along on solar energy in this country.
Even when I was in the European Commission ten years ago I visited
two solar stations providing substantial amounts of energy, one
in the Pyrenees and the other at Enna in Sicily. The one at Enna
was providing all the power for Enna, a reasonable sized place,
and putting it back onto the national grid. There were quite a
lot of developments there. Those sorts of things where there is
an interest in promoting a business approach to some of these
issues could be helpful, but we have to do a bit more than that.
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