Examination of Witnesses (Questions 340
- 359)
MONDAY 22 OCTOBER 2007
Ms Kitty Ussher, Mr Gareth Thomas, Mr Mark Paskins
and Mr Julian Farrel
Q340 Lord Geddes: To follow
up with my second part of the question, you said the Commission
needs to monitor that process. Do you think they have the ability
to do so?
Mr Thomas: I do. There are a number of Member
States that have paid the penalty in terms of heavy fines for
not implementing directives in the appropriate way so I think
the Commission has demonstrated that it does have teeth. I have
no doubt that Commissioners will be in touch with us and with
other Member States if they think there are problems. To date
we believe they have done a good job and they will be able to
continue to do that job as things go forward.
Q341 Lord Geddes: My other
question is on the role of the single currency. In the evidence
that we got in July from the Treasury and the former DTI, there
was a not unexpected paragraph about the single currency that,
yes, it is important but not vital. I am paraphrasing furiously.
Could you expand a bit on that? Has the single currency significantly
benefited the Single Market?
Kitty Ussher: That is probably one for the Treasury.
In terms of the first point, I think it logically follows that
if you reduce a barrier to trade it helps more trade to take place
and, of course, operating in their different currencies is a barrier
to undertaking any kind of transaction but it is by no means the
only barrier that exists and not the only area we should be focused
on. There are substantial intangible barriers like culture and
language, and so on, and other things we can do things about:
customs, in terms of labour markets, product markets, capital
markets and so on. That was the thought underpinning the written
document that you refer to. In terms of the evidence, the answer
seems to me to be that it is quite mixed. There was an increase
in cross-border trades in goods in the late 1990s. It is still
increasing but it seems to have tailed off to a certain extent.
If you wanted to look for a direct correlation between increased
trade and the existence of the single currency, I am not sure
myself that evidence exists in a very clear form. In terms of
Britain's position, bringing down barriers to trade encourages
more trade to happen but, as the then Chancellor set out in 1997
and then in his assessment in 2003 of his five tests for euro
membership, there are significant other factors that we should
take into account, notably in terms of sustainable and durable
convergence. The Assessment concluded that the benefits do not
outweigh the costs for the UK.
Q342 Lord Geddes: To ask the
question the other away around, the fact we are not a member of
the single currency has not impeded our involvement in the Single
Market.
Kitty Ussher: I think bringing down any barriers
to trade encourages more trade to happen but we have a huge amount
of trade with the EU even though we are outside the single currency.
If the subtext to your question is does that mean we should join,
no at this stage. Although there are some benefits, of which bringing
down barriers is one, there are also costs and we think that the
costs outweigh the benefits at this stage.
Q343 Lord Haskel: We all agree
that there are a lot more benefits to be derived from the Single
Market and one of the purposes of this inquiry is to see how that
can best be delivered. Do you think that the best people to deliver
it are the Member States or is it a matter for the Commission?
How can the enthusiasm for the Single Market be re-invigorated
by the Member States? We are agreed that there are economic benefits
but are they enough to motivate people to drive the Single Market
forward? The corollary to that is there is a rise in economic
nationalism. Is this inevitable? How can the benefits of the Single
Market be mounted against it? What we are really trying to ask
you is how can we drive this project forward in the best possible
way.
Mr Thomas: The project that we would see would
be how do we increase jobs, how do we continue to promote economic
growth and prosperity not how do we promote the Single Market
in its own right. We see the Single Market as a key tool in helping
Britain, and indeed the rest of the European Union, to continue
to have high employment rates and high growth rates. To unpick
that a little, we think there are both responsibilities for the
Commission and indeed for Member States in bringing the Single
Market forward, in terms of the role of the Commission and the
Commission focusing on those areas such as the network industries,
energy, telecoms, the postal services, where there will clear
benefits to further liberalisation and a clear role we think for
Commission activity. Equally there are responsibilities for Member
States obviously to implement the directives and to look at the
specific barriers within their own countries. We are both engaging
with the Commission, through the European Council, but also looking
at what we have to do in-country ourselves to take advantage of
the Single Market?
Q344 Lord Haskel: Those are
the mechanics and I think we would all be agreed on that. Do you
not think that to carry the public along there have to be some
political considerations or are there some social considerations
that we need to see that are brought to the fore so people can
see they have benefited in the Single Market.
Mr Thomas: High rates of employment and high
rates of economic growth are as much political objectives as they
are economic objectives in that sense. Yes, we need to continue
to demonstrate to members of the public, and more generally, the
benefits of market opening and we continue to do that. One of
the reasons why we have welcomed the opportunity to appear before
the Committee is the Committee's work, helping to bring light
to some of the additional wealth and some of the additional jobs
that have been created as a result of the Single Market, would,
in our view, help in a sense to re-invigorate enthusiasm for the
benefits that we think a Single Market has brought and will continue
to bring.
Q345 Lord Haskel: The paper
from the Commission refers to the citizen consumers being the
objective here. Would you agree with that? From what you have
described, you are inclined to see the benefit is for the citizen
consumer.
Mr Thomas: There are benefits to citizens as
consumers and there are benefits to citizens as employees and
as would-be employees as well from the Single Market.
Q346 Lord Haskel: The European
parliament has adopted a report on the Single Market review and
it argues that there has to be a social dimension to the Single
Market. What role should the social agenda play in the Single
Market? You have told us all about the economic benefits. Do you
see the social agenda as being part and parcel of the economic
benefits or is there a separate agenda there?
Mr Thomas: High rates of employment are as much
socially desirable as they are economically and politically desirable.
If by a social dimension you are making the case for substantial
new responsibilities on business, then I think we would hesitate
before being enthusiastic about such a prospect because anything
that makes it less likely for business to want to invest in Europe
is something we would obviously have concerns about. The social
benefits from the Single Market are very much in the higher rates
of employment that it has helped to generate particularly in Britain
but also elsewhere.
Q347 Lord Haskel: Do you not
think that there are other social benefits? For instance, if you
ask young people what are the benefits—and you are young
people.
Mr Thomas: Thank you very much. It is worth
coming along just for that!
Q348 Lord Haskel: When asked
what are the benefits of the Single Market they speak in terms
of freedom to travel, freedom to go and study, freedom to go and
work in other countries, freedom to settle and live in other places.
Do you not think that too is some sort of an incentive to try
and drive the Single Market forward? These benefits have come
from the economic advantages but a lot of young people particularly
see these as the benefits and they take a lot of the other things
for granted.
Mr Thomas: I would not want to disagree with
you. Coming from the Department for Business and Enterprise I
am supposed to take a very hard-headed approach to the business
benefits of the Single Market and that is what I have set out
to do but I recognise your description of those other benefits
that have flowed in the wake of the economic benefits.
Q349 Lord Haskel: As an MP
would you not see those other benefits as one of the reasons for
driving the Single Market forward?
Mr Thomas: I would but I would see the economic
benefits as being the overriding benefit from the Single Market.
Q350 Lord Whitty: Lord Haskel
has somewhat broadened the agenda but I will go back to the institutional.
The Department of Business Enterprise and Regulatory Reform also
in the business of the department looks after both consumers and
employees so there is built into the departmental agenda a wider
remit. It has been put to us that the focus for this institutionally
should be on the national regulators, both in general and in relation
to the three particular sectors, rather than the Commission or
planned European bodies or indeed national governments as such.
First of all, would you agree with that? Secondly, it is also
known that the performance and remit of independence of the national
regulators varies considerably and their sensitivity to issues
of competition, consumers, and wider issues, small firms for example,
varies quite considerably as indeed does their independence. How
far do you think the functioning of the Single Market and the
extension of the Single Market is inhibited by the differential
performance of the national regulators?
Mr Thomas: In reference to your first point,
there quite clearly have been substantial benefits for consumers
from the Single Market in helping, through the greater competition,
to keep prices as low as possible. We would see that of continuing
benefit in that way going forward. Coming to your point about
national regulatory authorities, yes there have been some problems
with inconsistencies between the performance of regulators across
the European Union. We point to energy as being a particular area
where there have been problems and where we are particularly enthusiastic
as a result about the liberalisation proposals for the energy
market that have been brought forward by the Commission.
Q351 Lord Whitty: In another
context I might not be quite as enthusiastic about the role of
Ofgem but in this context clearly Ofgem is a paragon of virtue
compared to some of the regulatory authorities which exist in
other Member States. Until we address that issue are we really
going to get a genuinely liberalised energy market? That certainly
applies to financial services as well as certainly many other
sectors.
Mr Thomas: We welcome the fact that the Ofgem
model appears to be what the Commission have based their proposals
for further liberalisation of the energy market on. Yes, there
have to be, in our view, improvements in the performance of energy
regulators, for example, across the Union if we are to see the
full benefits of liberalisation achieved. It is one of the points
we are continuing to press in the discussions that are ongoing
about the Commission's proposals.
Q352 Baroness Eccles of Moulton:
This is a question later on when we get into the three specifics,
energy, telecommunications and financial services, but there is
the alternative to full legal unbundling which is the independent
system operator model. Which do you think would enable integration
of the market?
Mr Thomas: Both could do a job of work in terms
of helping entrants wanting to come into the market to get proper
access. Our instinct is that the independent system operator has
the disadvantage of requiring fairly continuous and intrusive
regulation so we very much prefer the unbundling proposal but
we have not it ruled out. As I have described, the ISO route could
achieve the purpose.
Q353 Baroness Eccles of Moulton:
For all intents and purposes we are unbundled and it is not going
to be such a big mountain to climb as some of the other countries.
Mr Thomas: Indeed.
Q354 Baroness Eccles of Moulton:
Is there not quite a lot of pressure on Europe as a whole to be
much more co-operative about energy because of where the sources
of fossil energy will be coming from in the future? This is a
political question.
Mr Thomas: There is a recognition that Europe,
in a sense, needs to work together and that liberalising the energy
market, albeit that it poses particular challenges for particular
countries, is the right way to go. There is no secret there is
a robust debate as to how to take this forward. I take your point
that given the energy security issues Europe does need to stick
together, in that sense, to work these issues through and it is
indeed doing so. I come back to the point I made to Lord Whitty,
that has not stopped the Commission starting to take infringement
proceedings against a number of Member States but I think everybody
recognises we have to work together.
Q355 Lord St John of Bletso:
We have spoken about strengthening the Single Market and in many
ways my question is an extension of Lady Eccles question and that
is that many would argue that the efficiency, and potential efficiency,
of the Single Market has been impeded by over-regulation. Certainly
evidence suggests there is little appetite for new legislation
to be introduced to enhance the functioning of the Single Market.
What non-legislative approaches do you think offer the best alternative
route for further integration?
Mr Thomas: Perhaps I can take that point. I
would not accept your proposition that all legislative options
are unattractive. I have described the energy, telecoms and postal
services where there is certainly appetite for legislation but
I do take your point that there are a series of other non-legislative
options that are attractive: for example, use of the better regulation
principles is one attractive route to go down, the use of impact
assessments, efforts to simplify and codify existing legislation,
getting rid of obsolete legislation, more use of the mutual recognition
principle. Those types of non-legislative options are attractive
we think and there is a lot of potential there that we want, with
the Commission and in Member States directly, people to take advantage
of.
Q356 Lord St John of Bletso:
I take your point about the need for legislation but what lead
has Her Majesty's Government taken in the whole process of trying
to simplify the process and to look to deregulate where we have
over-regulation in some of the sectors we are referring to?
Mr Thomas: We have been pushing the Commission
to look at what it can do to simplify in a whole series of areas.
The Commission has identified 13 areas where it believes it can
simplify EU legislation with the aim of a 25% cut in the admin
burden for business by 2010. Company law and public procurement
are just two of the areas that are being considered. We have also
been encouraging the Commission to think about the particular
impact on small and medium enterprises of legislation. The Commission
is bringing back to the Competitiveness Council in November the
progress it has made in what will be the midway point of a five-year
programme to do just that.
Q357 Lord St John of Bletso:
I was going to move on to SMEs but I will keep that for the next
question. If I could now revert to the financial services action
plan. Of course the plan is not yet complete and there have been
calls for a regulatory pause. One of the major hurdles has been
integrating the retail sector. The barriers to integration in
retail financial services appear to be cultural rather than commercial.
What realistic prospect is there for integration in this sector?
Kitty Ussher: I do not think it is realistic
to expect ordinary retail consumers to use financial services
markets in the same way as larger business or wholesale consumers
do. That is not to say we should not be pursuing a more effective
Single Market in financial retail services. There is obviously
a small proportion of our consumers who would find it very useful
if they operate cross-border but I also do not see that we have
particularly anything to lose from so doing. We do not know what
the economic effect will be except that it is likely to be positive.
We need to recognise that retail financial services is a slightly
different market where there are strong national preferences but
that is not to say that it is not worth trying to bring down barriers
in cross border trade in this area, indeed in any other, so consumers
have greater choice and there is greater competitive pressure
to bring down prices and expand the options that are available.
Q358 Lord St John of Bletso:
Would you agree with the premise that one of the major barriers
is more cultural than commercial?
Kitty Ussher: There are very strong cultural
barriers but there are commercial barriers as well. It is in the
interests of our industry, since we have the largest financial
services centre in EU here in London, that we should seek to break
down those barriers. As to quantifying the relative size of culture
and commercial barriers, I am not sure that is an exercise I want
to undertake.
Q359 Baroness Eccles of Moulton:
As you say in your evidence, the SMEs represent 90% of UK and
EU business in the services sector. Liberalising the Single Market
is obviously as important to SMEs as to any other part of the
whole market but they probably need a bit more help. The question
is what assistance is your department able to offer them, particularly
in the light of the diluting of the country of origin principle,
the provision for the single points of contact, which is meant
to help them over the complications of operating under another
country's legal systems. This seems to apply to temporary registration,
companies operating under a temporary licence to trade in another
country. At what stage does temporary registration convert into
permanent when these particular problems cease to affect small
and medium-sized businesses to the same extent?
Mr Thomas: First of all, one needs to think
through the reasons why SMEs cannot or do not take advantage of
all the different opportunities there are under the Single Market.
Sometimes it is as basic as a simple unawareness of what the markets
are across the Single Market. There obviously UK Trade and Investment
has a role to play. Where there is particular advice that is necessary
about access to finance, which can be a constraint on occasion,
then there is the whole Business Link network with the national
help line, the on-line portal, the network of business advisers,
able to step in and help. There is then obviously the role that
we play as a Department, in a sense, in lobbying for directives
to be as friendly to small and medium enterprises as I have tried
to describe in answer to Lord St John. There are a series of other
steps that we are seeking to take. You mentioned the point of
single contact and that is obviously going to be particularly
helpful to small and medium enterprises. We are pushing for further
ideas to be developed by the Commission in terms of the better
regulation agenda, better use of impact assessment, the type of
things that we have done here in the UK, to generally positive
response, but not done necessarily quite as well across, in our
view, the Commission or other Member States. Increasingly we are
beginning to see those impact assessments being done in the sustained
way that we seek to do them in the UK.
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