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The noble Lord, Lord Kerr, reminded us a few moments ago that in the 1980s among the Conservative achievements in this area was to successfully override the opposition of other member states to, and then to implement, new enforcement powers for the European Court of Justice, including the very memorable historic move forward at that time of introducing the concept of fines on member states. It is extraordinary that in the course of 20 years-this has been part of the agony of my political life-the Conservative Party has done a complete somersault on this.

In referring to the Conservative Party, I can anticipate the remarks that the noble Lord, Lord Wallace, might make when he sums up, following what he said on the previous amendment. I recognise that the Lib Dems are very uncomfortable with this process. As I know

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him well, I recognise that the noble Lord, Lord Wallace, will have played the most positive part he could in trying to prevent complete extremists and head-bangers setting out the agenda that was to be adopted by the coalition Government. Indeed, the Lib Dems saw off the threat of repatriation of powers, which has been a very strong demand by a great majority in the Conservative Party for far too many years. Of course, that is splendid. I understand what the noble Lord, Lord Wallace, is really saying to us: namely, that they tried their best and could not do any better and therefore they ended up with a compromise, a kind of stalemate, between Conservative Eurosceptic extremism and Lib Dem pragmatism, if you like. That is where we are.

I say to the noble Lord, Lord Wallace, that we all understand the dramas in his party and in the coalition but that is not a good basis for legislation. We should be trying to legislate as far as we possibly can on the basis of a dispassionate analysis of the country's interests. I do not believe that the country's interests have changed in the area of the single market at all since the 1980s when, as I say, the Conservative Party took the lead in creating what we now call the single market, and a fine achievement it was. Should we say that we have certain powers which should be used-that is correct and I quite agree with that-and that we should exclude the idea that any new powers may be needed? However, life is not like that. Life always presents you with new challenges, difficulties and unexpected problems that you cannot possibly anticipate.

I am not brilliant enough to anticipate what might happen but of course there could be financial scams and major problems requiring new legislation or regulation. Big threats could arise to competition in some areas which may show up the inadequacy of our present competition powers. Problems could arise in implementing the single market. It may be shown that the one reason why we have so far failed to implement the single market in the energy area is because our powers are inadequate and therefore it might be necessary to take more powers. I am not suggesting that we should take more powers and I am certainly not clever enough to anticipate in what hypothetical circumstances we might need them. I am simply saying that-I think that we are saying this on this side of the House generally-it would be very stupid to exclude ab initio the possibility that we might need to develop the portfolio of powers that we currently have to try to build up and nurture a successful single market and to assume that all the problems that we face exist now and have revealed themselves once and for all and that there will be no surprises in the future. That is not a realistic way of conducting the nation's business; it is certainly not a way one would ever conduct a private business, of course not. One would know that what was needed, to use my noble friend's term, was the flexibility to respond to the unexpected. That will never cease; as long as human history continues we shall always need to do that. And here we are depriving ourselves of that flexibility, let there be no doubt about it.

Of course the Eurosceptics on both sides of the Chamber will say that the Government will not have a referendum because it might be lost. Well, a referendum may be lost or gained but it is quite clear to me-I

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made this argument at Second Reading and I believe it firmly-that in most cases a Minister will be deterred from getting into the position where there might be even some legal doubt about whether an action or decision by him could trigger one. It would be the end of a Minister's career to come back from Brussels to be told by his legal advisers a few days later that what he had agreed to would require a referendum. The Prime Minister would sack him on the spot. No Prime Minister wants a referendum suddenly landed on him.

Irrespective of what the British nation might feel or whether the great public expect to be asked by us to do all the homework, to read the documents, to come to a substantive decision on technical issues, the very fact that a referendum could be triggered under the regime the Government propose with this Bill will act as a total deterrent and a total freeze on any flexibility at all. So, from having led the way on the single market with an imaginative, forward-looking and enterprising approach, sadly after a generation we are now, substantially under the leadership of the party that more than any other in Europe should be given credit for the single market, producing a situation in which, by definition, we cannot be part of any change however sensible because, irrationally and substantively, a referendum is clearly a political impossibility. It is certainly an impossibility if it is on a technical matter which might be considered to be rather minor by the British electorate. As politicians in this House, we all know that is the truth.

That is what we are letting ourselves into if we pass this Bill, unless we do so with the kind of amendments which my noble friend has introduced to bring a little bit more reality and realism and a sense of the way the world is into its operation. I therefore wholeheartedly support my noble friend. I hope that, if this amendment is not pressed now, we shall get into serious business at Report stage and that we manage to change the Bill into a more sensible direction along the lines he has proposed.

Lord Flight: My Lords, it seems perhaps surprising but state aid is yet another area where powers granted to the EU have exceeded themselves. Noble Lords will have been aware that, in the recent Budget, the Government quite rightly wished to provide additional support for small companies and to widen the EIS to do that because the equity funding gap is up to £10 million. This has been limited because the state aid rules, which were rightly intended to stop unfair massive state subsidy of uncompetitive industries, have been used to decree that you fall foul if there are any sort of tax incentives to companies with more than 50 employees or those raising more than £2 million per annum. This ridiculous intrusion into the economic life of this country has been put in under the guise of state aid, so the Government have rightly said "We are going to go back and renegotiate this". However, instead of being able to put in the financial support when it is needed-when the economy is on its back as a result of the last Government's failures-we have to wait another year to try to negotiate to widen these issues.

I have some sympathy with what the noble Lord has said in principle but, when it comes to experience, the last thing I want to see is any more state aid powers.



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9.45 pm

Lord Davies of Stamford: I had thought to myself, "Dear oh dear"; when the noble Lord and I were colleagues in the Conservative Party a generation ago, we would have both been arguing against state aids on the basis that they were always distortionary, and the European Union was a wonderful way of getting away from the completely self-destructive bidding war that all nations are inclined to get into, in terms of providing some sort of subsidy or other for their industries on whatever political or other grounds or the fashionable economic doctrines that might be in vogue at the time.

However, I repeat my main point that we do not need to get into a discussion on the theory of state aids or their substantive costs or risks, because the assumption has always been-and the way that the issue has always worked has been-that European Union member states have held robust discussions between them on these matters. We have never signed up to anything that we did not agree to. All that I and Members on this side of the House want to achieve is for us to continue to be able, when we think that it is in the national interest, to go along with some agreement for new, extended or slightly modified powers. That is all. There is no suggestion that in advance we would necessarily agree to anything of that kind-that would be utterly unrealistic-but we need to maintain flexibility. The noble Lord is a very considerable and successful businessman, and in the conduct of his own business he would not adopt the policy he is now suggesting for the nation. You must never exclude the need to be able to respond to new problems as they arise. That is all we are asking for.

Lord Flight: I am sure that all noble Lords would agree with the basic reason for opposing state aid, as the noble Lord and I did some time ago. My point is simply that the state aid rules have already ended up being interpreted in a fashion that is manifestly not economically sensible. They are damaging the economic interests of this country and, not surprisingly, I would very much like there to be a check on the ability of state aid rules to be yet further misapplied.

Baroness Falkner of Margravine: My Lords, perhaps I may stick to the substance of the amendment. As I have not been privy to the debates in the usual channels, I ask why amendments that are similar in terms of the arguments employed have been de-grouped for sequential consideration. It has resulted in the debate being all over the place and we are spending far longer on it than might have been the case. I know that the Minister will not deal with that issue, but I hope that the usual channels will go away, contemplate whether we can make slightly speedier progress on these matters and perhaps have a debate that is more valuable to the rest of us who sit here and listen attentively.

I should say to the opposition Front Bench that I have considerable sympathy with the noble Lord, Lord Liddle, on these amendments; and I say to the noble Lord, Lord Davies, that he is right that a consensus has prevailed in this country over the single market, competition policy, and so on. I pay tribute to the Conservative Party for having taken us there, but

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today no party here can say that it is a champion of that consensus to a greater degree than any other party. These are valuable probing amendments.

At this late hour, in order not to detain the House longer, I want the Minister to answer the question that he did not answer on the previous amendment. I believe that any treaty changes made to enhance the ability of the Commission, the European Court of Justice and other bodies to enforce EU rules would fall under the significance condition. My understanding is that where a treaty change merely confers additional powers on an EU body or institution to impose new requirements, obligations or sanctions on member states, and when this change is deemed not be significant for the UK, a referendum would not be required. In which case, do we really need to have the amendment? If the Minister gave us an answer as to where the significance test would apply-we debated that at length several hours ago-we would know which side of this amendment to be on. It would be most helpful if we could get some clarification on that.

Lord Liddle: The point of these amendments is the reverse of the significance test. We are saying that securing change in these areas-very important changes on the single market or the effectiveness of the European Court of Justice or whatever-could be highly significant, not insignificant, for the UK. However, we would not want to stop British Ministers agreeing to them on the basis that they would fall foul of the referendum test. That is the point.

Baroness Falkner of Margravine: Perhaps I may ask for the patience of the Committee for a moment so that I may respond on that very valuable clarification. If it were in the UK's national interest to pursue the options of the changes proposed, would we not, in the event that there had to be a referendum, expect the British Government to fully support the referendum?

Lord Waddington: Surely we are entitled to ask the noble Lord for an explanation as to why the Opposition sought an arrangement whereby the last two amendments were debated separately. The noble Lord has used exactly the same arguments for both amendments and therefore he has wasted a great deal of time. I think that there should be some explanation as to why, when the original grouping put together Amendments 20ZA and 20ZB, we have ended up debating them separately and precisely the same arguments have been advanced by the noble Lord on both amendments.

Lord Risby: My Lords, essentially the amendments deal with the removal of a referendum provision in three areas which are in our vital national interest-something on which we all agree-namely, the single market, EU competition and state aid. Of course, these are areas where the EU should concentrate, particularly the single market, which is indeed in our national interest. However, this is all possible under the existing treaties and, if sensible actions are taken under the existing treaties, there can be no possible objection to this, and the Bill does not prevent this happening. That is the essential difference and I think that there is some misunderstanding. The Bill does not

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prevent EU action where the treaties allow it. It is only in areas where a judgment would impact on us seriously that a treaty change might be required, and in those circumstances we would come back to the issue of whether or not to have a referendum. In this House we all agree about the importance of the single market. If, for example, there was a proposal concerning the labour market that could have an impact on this country by undoing much of the trade union and employment law reform, that would have an enormous impact not only on this country but on the entire European Union. In those circumstances, it would be absolutely legitimate to consider the possibility of a referendum.

Finally, in a very interesting speech, the noble Lord, Lord Mandelson-and I am sorry that he is not here-made the point that so far as he could make out the coalition Government were being entirely pragmatic. All the discussions that I have had with others have indicated that our member state friends-officials and politicians-would agree with that. Quite frankly, it is in the context of trying to defuse the difficulty in this country towards the European Union that this proposal is made. In that context, it is important in very specific circumstances affecting our national interest, including the single market, that an option is available for a referendum, although it does not necessarily have to be used because it is covered under the existing treaties.

Lord Pearson of Rannoch: My Lords-

Lord Wallace of Saltaire: My Lords, I fear that we have been following a number of hypothetical will o' the wisps around here. We have heard, "It's possible, it might be the case, we can't think of an example but at some point perhaps the powers might prove not to be adequate. We haven't used many of the powers and competences yet; nevertheless we might not have enough". I remind the noble Lord, Lord Liddle-perhaps he even wrote it-of an article in the Telegraph in which David Miliband, our previous Foreign Secretary, said:

"One of the greatest blessings of the Lisbon Treaty is that it brings to an end institutional navel gazing ... the EU [will have] 10 years to prove itself",

without further treaty change. That is where we are now. The noble Lord is insisting on standing improperly. Although I did not wish to give way, I shall give way to him once.

Lord Pearson of Rannoch: My Lords, I could speak to this amendment before the noble Lord sits down, but if he is going to reply to the debate, it might be convenient if he hears what I have to say on this amendment. I think that that is in order.

I oppose this amendment, and I am afraid that I have to go further and say that I am not among those who think that the single market has been an undiluted success for this country. I shall be speaking in much greater detail to that fact under Amendment 41, so I will not detain your Lordships long this evening.

I am also aware that there are dying embers in the Conservative Party-shared by the noble Lord, Lord Davies, no doubt from his time on those Benches-which hold that the single market is one of the Conservative

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Party's greatest achievements. I can deal with a few facts briefly to show that the single market has been a disaster for this country. You only have to take the report of the Treasury, Global Europe: full employment Europe, signed by Mr Gordon Brown himself, which estimated that EU overregulation, which comes to us entirely thanks to the single market, costs us some 6 per cent of GDP per annum, or £84 billion a year. It handicaps our exporters, and what we are about to see hitting the City of London from the new supervision bodies coming from Brussels under the single market will clearly be disastrous.

Then there is the very simple point that only 9 per cent of our GDP goes in trade with clients in the European Union; 11 per cent goes to the rest of the world and 80 per cent stays here in the domestic economy. Yet, 91 per cent-everything in the domestic economy that is exported overseas-is controlled by the single market.

Lord Wallace of Saltaire: My Lords, I gave way to what I understood was an intervention from the noble Lord. He previously gave no indication that he wished to speak to this amendment. I had certainly not seen him and I was looking directly at him. I think that he is being discourteous.

Lord Pearson of Rannoch: I did not stand up because I was waiting for my turn. I moved to speak on several occasions. Obviously I am in the hands of your Lordships, but I understand that we are entitled to speak to these amendments in their order on the Marshalled List, and I have rather different points from those of the noble Lord, Lord Waddington, as I regard the single market's disadvantages as rather different.

Baroness Anelay of St Johns: My Lords, I wonder whether the noble Lord will take his seat. We are not on a deadline tonight but are seeking to carry out the proper debating role of this House. As the noble Lord will know more than most, in Committee he may speak after the Minister, unlike on Report. Therefore, it might be courteous, since the Minister had started to speak, to allow him to continue to give his response. Of course, the noble Lord, Lord Pearson, may speak after that. My noble friend indicated that he did look around. Indeed, I was at the door of the Chamber at that point, so he was not intending any discourtesy. Perhaps the noble Lord might allow the Minister to complete his speech, because he gave way only on the basis that it was an intervention, and he had not finished speaking himself. Perhaps that is the way to proceed. The noble Lord, Lord Pearson, will have a full opportunity to speak, as he has on other occasions.

Lord Pearson of Rannoch: I merely wish to say that I wanted to speak to this amendment from the start. It is not my fault if the noble Lord, Lord Wallace, did not catch my eye before he stood up. I am always a very well behaved boy in your Lordships' House, and with the extreme charm with which the Chief Whip has put her request, I shall not continue with my remarks now. But they are important because they prove that the single market has been a disaster for this

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country. I shall come back to that under Amendment 41, if I may. In the mean time, the Minister can feel free to carry on. I did not realise that we were on a close deadline.

Lord Wallace of Saltaire: We are not necessarily on a very tight deadline, but it is customary to move towards a close. However, I was speaking. I thought that the noble Lord was trying to intervene and gave way to him as an intervention. We clearly misunderstood where we were.

I was saying that, speaking in another place, David Miliband also said in November 2009:

"The Lisbon Treaty provides the Union with a stable and lasting institutional framework. We expect no change in the foreseeable future, so that the Union will be able to fully concentrate on addressing the concrete challenges ahead".-[Official Report, Commons, 23/11/09; col. 273.]

I agree with those pragmatic, practical sentences. We all recognise that there are differences of view within all parties about European matters. The noble Lord, Lord Davies of Stamford, has moved from one party with a very wide range of views on European integration to another, as he well knows. I shall not respond further to his slightly hobnail-booted references to relations within the current coalition.

Lord Davies of Stamford: The great joy for me is that, for the first time in many, many years, I find myself in agreement with those on my Front Bench. I assure noble Lords that that makes a great deal of difference.

Lord Wallace of Saltaire: I return to where we were on the amendment, as on some of the others that follow. Here we have a Government who are playing a positive and practical part within the EU within its existing, but considerably expanded, competences. I have looked at Articles 102 to 106 and Articles 114 and 116. I totally failed to find the relevance of Article 308, which, in my copy of the treaty, is about the European Investment Bank, but perhaps when we get to debate on Article 41, the noble Lord, Lord Pearson of Rannoch, will tell us what that is all about.

Lord Pearson of Rannoch: I was referring to Article 308 as it was under the Nice treaty. Before that it was Article 257 in the original treaty of Rome.

Lord Wallace of Saltaire: I will not pursue that further.

The question is: does the Bill tie the hands of the British Government against British national interests? That is the fear which the noble Lord appears to have; I have to say that it is an irrational fear. There is a great deal that the British Government can do to pursue our national interests within the European Union within its present competences, and we are doing so.

The noble Baroness, Lady Symons, gave us an early version of her speech on the question of enhanced co-operation before dinner. As it happens, the United Kingdom Government are leading in early enhanced co-operation. The Franco-British treaty puts us very much in the lead on European defence co-operation.

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It is not what some other members of the European Union would have liked to put in the treaty, which was a commitment to have a European army, but of course they did not know what they meant by having a European army: it is much more practical co-operation on military affairs. That is the way forward, it seems to us.

On the following amendments from the noble Lord, I see nothing in the Bill which cramps the British Government in pursuing practical and effective British interests within the European Union in strengthening the single market. We now know that the single market has not been fully implemented. Some of what was happening in Greece was appalling; I have just been to southern Italy and it was quite easy to see parts of the single market which are not enforced there, but the powers are there. The single market needs to be more effectively enforced. There are clauses in the Lisbon treaty which talk about expanding the single market into services. There are some very tough clauses on state aids and competition law. We have those powers, and we do not need to spend more time chasing constitutional change before we begin effectively to make the European Union work better.

Lord Liddle: My Lords, the noble Lord, Lord Wallace, has tried to make a very powerful case for the Government, but actually he is unwittingly misleading the House when he quotes David Miliband as saying that there is

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no need for any further institutional navel-gazing on the basis of the Lisbon treaty. I would agree with that, although obviously the euro crisis has created a new situation in economic affairs. Broadly speaking, given where he stood in 2009, that is absolutely right, but David Miliband was talking about the Lisbon treaty that contained the simplified revision procedure under Article 48(6) and the passerelles under Article 48(7). He was talking about the package that gave the Union powers but also contained limited flexibility to change those powers in the light of circumstances precisely in order to obviate the need for further major treaty change for a long period ahead.

What this Government are now doing and what this coalition has agreed to do is basically to hamstring the flexibility that the Lisbon treaty contains. That is why the Opposition are urging the Government to think again, because this is where all the requirements for 56 referenda come from. If only you would look at the issue of how to allow more flexibility within the Lisbon treaty, many of us on this side of the House would be satisfied. I shall withdraw the amendment for the moment in the hope that the Government will consider these issues further.

Amendment 20ZB withdrawn.

House resumed.

House adjourned at 10.08 pm.


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