Examination of Witnesses (Questions 1-19)
15 JANUARY 2008Mr
Jim Murphy, Ms Shan Morgan and Mr Adam Bye
Q1Chairman: Thank you very much indeed, Minister,
for giving of us your valuable time once again to meet with this
Committee. I should say that we are very delighted also that Shan
Morgan and Adam Bye are with you and, as usual, Minister, you
are free to ask them to contribute to the conversation at any
point where you feel it appropriate. Would you like to make an
opening statement?
Mr Murphy: Thank you for your welcome, Lord
Grenfell. While today's discussion and hearing is not of course
about the Lisbon Treaty—which is a temporary and welcome
respite for perhaps two hours based on what is going to happen
over the next week—it may be helpful to your Lordships for
me to confirm that the Commons, as your Lordships may be aware,
will have Second Reading of the Lisbon Treaty bill on Monday.
Secondly, I have now signed off the response to the questions
arising from the proceedings of our hearing on 18 December, as
your Lordships had subsequent questions to the hearing just before
Christmas. I am also in the process of writing to Sub-Committee
F about the questions addressed to myself and to fellow Ministers.
And we will this week publish the Consolidated Treaties, which
of course is a specific request of your Lordships in your report;
we will publish that this week as a Command paper and of course
forward it to your Lordships and that will provide a text and
a comparison between the Lisbon Treaty and previous EU Treaties.
Chairman: That is going to be very helpful
and we are very grateful because I know that it has been a Herculean
task to put that together; so thank you very much indeed on behalf
of the Committee. Before we go on to the Conclusions of the Council
there is one issue that we would like to raise.
Q2Lord Wright of Richmond: Minister, I apologise
for breaking into your respite but I will be very, very brief.
Are you in a position yet to tell us more about secondments to
the Commission and the External Action Service, which you will
remember I raised on 18 December?
Mr Murphy: First of all, my Lord Chairman, thank
you for the kind comment about the effort that has been put in
by officials to produce this Consolidated Treaties text because
you will see, when it arrives, that it is a really considerable
piece of work; and the officials have worked very hard over the
festive period as well to conclude that piece of work. We are
disappointed that today I am not in a position to add much detail
to that which has already been offered, on the basis that we have
not really gone into any conversation or any negotiation with
other European leaders about the detail; but as I said, my Lord
Chairman, when any progress is about to be made or is being made,
I am happy to offer to return to your Lordships' Committee to
offer evidence and an assessment and to be open to scrutiny, in
principle and in practice, without question.
Q3 Lord Wright of Richmond: There was
also a question about the present practice of the extent to which
we are seconding people to the Commission.
Mr Murphy: As your Lordships will recall, I
offered to write to your Lordships with the details of how many
to which European organisation and that is one of the questions
I intend following up in written evidence this week to your Lordships.
Chairman: We will return to the respite
now! Let us go to the Conclusions of the European Council of 14
December on cohesion policy and Baroness Cohen, who chairs Sub-Committee
A which deals with this.
Q4 Baroness Cohen of Pimlico: The Conclusions
of the European Council state that "the role of the regional
level to deliver growth and jobs should also be increased, as
recognised in the new generation of programmes of the cohesion
policy covering the period 2007-2013". I chair Sub-Committee
A and we are currently undertaking an Inquiry into the Future
of European Structural Funds. How might European regional policy
be used to generate the growth and employment envisaged by the
Lisbon Strategy? Are the structural and cohesion funds just spread
too thinly to have any meaningful impact?
Mr Murphy: I will respond to the final part
of your question first. I do not think they are being spread too
thinly, as long as they are concentrated in the areas of most
need and greatest priority. In the same way as with the UK labour
market and the UK regional policy there unfortunately continue
to be pockets—and in some cases larger than pockets—of
relative deprivation where the UK Government focuses its relevant
energy and resources, for example the Treasury and DWP. I think
it is a similar approach across the European Union. The combined
budget of the structural and cohesion funds is about 36% of EU
spend, and what we are looking to do is to ensure that there is
a greater focus on the Lisbon Agenda and that it is targeted at
the regions within the nations of greatest need. If we stay true
to the Lisbon Agenda and the regional disparities then our assessment
is that that investment is substantial and sufficient.
Q5 Lord Tomlinson: Minister, if we want
to stay within the budgetary constraints that the Government has
set, ones which I certainly would readily support, how is it possible
to get the fullest impact of the structural and cohesion funds
unless we succeed in a policy of weaning Spain, in particular,
off the funds? They have had great impact in Spain with great
benefit to Spain and to its rate of economic growth, but is not
the continued support of Spain, at a point when I am not fully
persuaded that they need it to the extent of some of the new,
poorer regions, a contributory reason for perhaps not getting
the impact in some of the new accession countries that we would
want to see?
Mr Murphy: I think there is a fair point underpinning
your Lordship's question and without me treading on to the delicacies
of Spanish politics I think it is a general principle that we
do wish to see spending continue to move away from the most prosperous
nations towards those most in need. I think the figures at the
moment are that again 36% is spent on the EU 15, with the remaining
64% spent on the newer Member States. I think that is a two-thirds/one-third
break. I think that direction of travel needs to continue. Without
commenting on any individual Member State I think it is an inevitable
consequence of that that some of the more prosperous Member States
will, in a fiscal sense within these funds, no longer get the
money that they do and that the poorer Member States—I think
rightly and fairly—have access to the type of economic support
that Spain, Ireland and some others have had, which has been so
much an important benefit over recent years.
Q6 Lord Wade of Chorlton: My Lord Chairman,
first I should declare an interest when I ask this question because
I chair a not-for-profit company in the northwest of England called
NIMTECH and we for a long time have been in the job of actually
managing European funds on various projects, and UK funds. The
impact on how they are managed is tremendous—the regulation
that besets them. So I am asking a rather more detailed question
really, that these funds are now very substantial; they can play
an enormous role in developing those weaker parts of the European
economy, but the way it is done can make a tremendous difference
in that millions can be wasted. How much do you see the UK being
able to control or at least have some input to make sure that
these funds are used most effectively?
Mr Murphy: The issue about transparency and
accountability to spend is both right in terms of fiscal management
as well as confidence in the system. I have listened to a number
of voluntary sector organisations, in particular in and around
Glasgow, and they have spoken about their frustration at continued
form filling, and you try and say that this is about the accountability
that goes with the investment. So I think it is crucial that that
is maintained and we have no plans to move away from that. Indeed,
if we can find additional ways without being bureaucratic and
burdensome, particularly in smaller organisations, if we can find
additional ways to have that transparency and accountability then
we are very interested to hear any suggestions there may be.
Q7 Lord Wade of Chorlton: Could I just
come back on that because it is interesting to me and it is more
important that the money that is spent has the biggest possible
output than it is to ensure that a little bit of it is not wasted.
It is exactly the same in running a business; sometimes you have
to make decisions where you do not make it in full, but it is
important that the money you do spend gets the biggest maximum
benefit. My own experience tells me that in fact some of these
controls actually prevent the best use of the money and what they
save is very small compared to what could have an impact if the
money was spent most wisely and effectively. I leave that for
your consideration.
Mr Murphy: I will happily consider it but in
addition to that, however, there is the point about the length
of period which the grant is offered to them. We have our own
anecdotal feedback but in and around Glasgow the frustration is
that there is a perpetual bureaucracy around this process. The
Commission may have ideas as to how to simplify that process and
I think that would be very welcome. I am not certain that the
Government has the comfort that someone in business would have
in terms of being allowed to turn a blind eye in effect to a little
waste; if we allow a little it grows to something else. So there
should be an intolerance of waste that we can identify, and impacts
to the maximum outcome where possible, which is why there is the
focus on poorer nations, which we are seeking to lead.
Chairman: We will move on to financial markets.
Q8 Baroness Cohen of Pimlico: Minister,
the Conclusions underlined the importance of improving transparency
for investors, markets and regulators, improving valuation standards,
improving the prudential framework and supervision in the financial
sector. I think my question out of all of this is: do you think
that the EU in general and the UK in particular is adequately
equipped to deal with any further financial instability in the
short-term?
Mr Murphy: The UK in particular? Of course one
never wishes to be complacent on these issues, far from it, but
I think that the UK, by international standards, is considered
to be in a very strong position in terms of a lot of the macroeconomic
statistics—inflation, employment growth. If we compare the
UK inflation to the Euro area or the US or whatever, it is 2.1%
in the UK, 3% in the Euro area and 4% I think in the US. So without
in any way being complacent I think we are in a relatively strong
position. In terms of the EU, the EU does have a role about coordinating
international efforts, coordinating the will of governments, and
we, the French President and the German Chancellor came together
on this matter at the European Council.
Q9 Baroness Cohen of Pimlico: A supplementary
on that. One of the signs of weakness is traditionally one's currency
going southwards, which it is currently doing in relation both
to the Euro and slightly to the dollar.
Mr Murphy: In terms of our own currency?
Q10 Baroness Cohen of Pimlico: Yes.
Mr Murphy: I have not seen today's money markets
but my understanding is that sterling was high vis-a"-vis
the dollar.
Q11 Baroness Cohen of Pimlico: Right
down in relation to the euro.
Mr Murphy: I think that is more to do with the
strength of the euro than the weakness of the pound, which is
a reflection of the progress that the euro has made over the past
few years.
Q12 Baroness Cohen of Pimlico: My Sub-Committee
is also doing a report on the euro and it is difficult not to
conclude that the euro has become a very large and stable looking
currency.
Mr Murphy: For those who have a continuing visceral
political dislike of the euro I think the economics do not bear
that out. The fact is that increasingly there is substantial anecdotal
evidence, in the Far East, for example, of a growing affection
and affinity for the euro, particularly in light of the relative
weakness of the dollar; but it has not of course changed the UK
Government's position on the euro, before we get into that conversation!
Q13 Lord Tomlinson: I was interested,
Minister, in those words "the economics do not bear that
out". Is anybody doing a review then of the euro against
the criteria that the then Chancellor of the Exchequer set, to
determine our relationship with it?
Mr Murphy: We are not currently actively studying
or revisiting the five tests, which would necessitate a referendum.
There are no plans to do so at the moment.
Chairman: That was a succinct answer. Let us move
on to the single market. Lord Powell.
Q14 Lord Powell of Bayswater: Minister,
the single market is probably Britain's biggest contribution to
the European Union. The Commission introduced their Single Market
Review and Sub-Committee B of this Committee is looking at it
and will issue a report, I hope, through this Committee early
next month. The European Council asked the Council to come up
with advice on priorities by the time of the next European Council.
What priorities is the UK going to press for?
Mr Murphy: The priorities would be liberalisation
of the energy market and liberalisation of other networks, including
transport. Allied to that would be ensuring that we do not move
away at all from the Lisbon Agenda. I think we will talk about
the Lisbon Agenda a little later, but the Lisbon Agenda remains
the template against which substantial proposed reforms are judged.
So liberalisation of energy and other networks, including transport.
Then we also wish to see, in truth, the completion of the Single
Market, particularly around services and the Services Directive.
At the conference yesterday, which perhaps a number of your Lordships
were either at, or read about, the Prime Minister and very senior
British business people spoke about the completion of the Single
Market. One of the figures that struck me was that 96% of new
jobs in the EU are in the services sector but only 20% of internal
EU traders were in services. So there does need to be a radical
transformation of the services sector. So those would be the priorities.
Q15 Lord Powell of Bayswater: The conclusions
that seem to be emerging from our study are that one area of weakness
is implementation of the Single Market regulations and directives;
and the other is that small business feels itself virtually excluded
from the Single Market. Will we be giving priority to those two?
Mr Murphy: On national action following European
declaration I think that is a fair observation. As I read fellow
Ministers from different European capitals there is a real political
commitment at a European level and the challenge then is to translate
that into domestic action, which in some States will be substantially
controversial. We see the proposed reforms in France and we see
other proposed reforms, but we are optimistic that this commitment
on the Single Market is not a temporary one; it will feed through
into substantial domestic reform across the entire European Union.
In small businesses there is a proposal under the Slovenian Presidency,
as your Lordships will be aware, of a small business package and
we expect to make substantial progress—substantial
progress—over the next six months. I am speaking at a reception
this evening at the launch of the Slovenian Presidency, as a guest
of the Ambassador here, and they have identified and we strongly
support the progress they wish to make on the small business package.
Q16 Lord Powell of Bayswater: Looking
at the priorities as a whole over the next two years, do you think
that the procession of EU presidencies that we face in these two
years is such as to be likely to advance the Single Market?
Mr Murphy: I think the factors that will be
continued will be bumped along the road, as your Lordships will
all be aware, and that is unavoidable. There is a very strong
momentum on the Single Market. No one is trying to unpick the
in-principle agreements on the Single Market. The Lisbon Strategy
is now accepted orthodoxy; and it is about maintaining that momentum.
The UK will be at the forefront of trying to make sure that momentum
is maintained along with a substantial number of others. But it
is inevitable on occasion that in some Member States who have
substantial traditional industry it could cause domestic pressure
and domestic controversy; but I think there is a determination,
even in those countries, to see progress.
Chairman: Let us move ahead to the energy questions.
Q17 Lord Dykes: I, too, Minister, am
hoping to go to the Slovenian function because it is the only
building in the vicinity of this building that carries the European
flag; no government buildings have the European flag on them at
the moment—I think the only capital where that is the case.
Still, that is a separate matter. You have mentioned energy and
Malcolm Wicks was very helpful in giving us an update on the December
Energy Council, and we are dealing with the third internal package
now for gas and electricity. The Commission, I think, has been
beavering away very, very energetically—if that is the right
verb—to get to the kind of policy that we all want, but
it is very, very difficult and there are different views on things.
Can you give us now an update on this very painful and difficult
debate about the unbundling proposals, which are supported in
general by most of the Member States but there are, I believe,
eight or nine of the Member States, including France, that resist
this and want to make what they call a "third alternative"
or perhaps a third way suggestion, for which we are now waiting.
There are also variations in some of those countries too about
their views of what should be done; it is not all exactly the
same. Can you bring us up to date and tell us what is happening?
Mr Murphy: I have read through some of Malcolm
Wicks' mail and evidence and correspondence and our policy approach
is led by the evidence, and I think your Lordships are aware of
the evidence about where there has been proper unbundling of the
energy market investment has been greater and price increases
have been significantly lower—I think it is six versus 29%
in terms of the French in between unbundled versus bundled energy
markets. Your Lordship is right that there is a proposal to have
a third way, a different approach. A specific proposal has not
yet been tabled, so it is difficult to pre-empt a response to
a proposal that we know exists in principle but of which we have
not seen the shape or size. But we are not convinced that a different
approach is the right way to go and if there was a third proposal
we would have to meet the Commission's established criteria about
the distinction between ownership and network transmission, and
those involved in a competitive environment. So that is the criteria
against which we will judge any third proposal.
Q18 Lord Dykes: Do you think that the
Commission's approach is made more difficult by the reality that
because Russia took some provocative action about cutting off
supplies and so on some time ago, and then there were difficulties
with eastern European countries, that then a number of leading
EU countries just as one country made their own supply negotiations
with Russia and other suppliers and therefore that has perhaps
made it more difficult for the Commission to get a cohesive, unified
policy formed?
Mr Murphy: I think that is a fair assessment,
that Russia's actions on energy policy have led to uncertainty,
both at a political level and at an industry level, which is one
of the reasons why we strongly believe that not only should there
be a diversity of energy supply but there needs to be, particularly
out of Central Asia, a diversity of source to market, which means
the routes of pipelines, for example. At the event yesterday the
Ambassador from Hungary raised specific concerns with John Hutton
as Secretary of State just about routes to market and the stability
that that would provide, so there is not an absolute reliance
on Russia as either a source or a route. So I think it is a fair
assessment that there is a degree of uncertainty. But that in
itself is not the reason for Europe changing its posture on the
liberalisation of the energy market.
Q19 Lord Wade of Chorlton: What then
do you think should be the European view if Russia were to start
investing large sums of their money into energy companies in Europe?
Mr Murphy: Our approach would be that this would
be an issue for national regulators. Despite the various twists
and turns and even yesterday's announcement on Russia and the
British Council these things are not connected; we do not wish
to see them connected. Russia's policy on acquisition of energy
assets really is a matter, as I say, for national regulators and
normal procedures. There is an additional pressure on Russia,
and whilst this is not strictly within the initial question the
real pressure on Russian energy, as your Lordships will be aware,
I am sure, is that our assessment is that Russia is not making
substantial enough investment at this point to honour its international
obligations and its domestic demand. I think the timeline for
that, your Lordships, is probably within five years—that
would be the case. So this issue is relatively intricate but of
fundamental importance to the European economy and of course the
Russian economy.
Chairman: That brings us on quite neatly to the Lisbon
Strategy.
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