HC Deb 12 July 1976 vol 915 cc322-32

5.50 a.m.

The Minister of State, Treasury (Mr. Denzil Davies)

I beg to move, That this House takes note of Commission Documents Nos. R/1361/73 and R/877/75 on Public Supply Contracts. The EEC drafts of the Supplies Directive and the Council resolution on third-country products are closely related, and with their recently updated explanatory memoranda, are fairly self-explanatory. I shall say only a few words about the background.

Essentially the draft Supplies Directive would, when adopted, require member States to follow common procedures for the advertising and award of central Government and local government supplies contracts to reduce discrimination on grounds of nationality.

The underlying obligation is not a new one. We have been bound since the Treaty of Accession by provisions prohibiting discrimination of nationality, and we inherited a parallel directive on public works contracts. What we are concerned with here is a framework of straightforward rules which do no more than introduce procedures which give practical effect to the principle of nondiscrimination to which we are already committed. In these circumstances the aim of the Government has been to play a full and positive part in the negotiations to ensure that the final shape of the directive is in accordance with United Kingdom interests.

The main effect of the directive will be an eventual increase in intra-Community trade with new opportunities for United Kingdom industry to obtain public orders abroad. At the same time, other Community countries will have an opportunity to apply for our contracts. We cannot be certain about the outcome, but because our public purchasers are already slightly more free than those of other countries to purchase abroad the introduction of compulsory advertisement is likely to involve a net benefit to the United Kingdom.

The directive requires that certain public supply contracts should be advertised. Although this new advertising requirement will carry with it a degree of administrative work, it will not produce a heavy burden. It is expected to bring benefits in the sense not only that other countries' public contracts will be open to United Kingdom competition but that United Kingdom firms which have not previously shown an interest in our public contracts will be encouraged to do so in future.

The directive will apply to central Government and local government, police and fire services and health services. It will not apply to purchases of weapons or war material, and contracts awarded by authorities responsible for transport, telecommunications or the production, transmission or distribution of energy or water. Moreover, it will not apply to contracts below a threshold. We expect this threshold to be in excess of £100,000.

If the directive is accepted by the Council, it is expected that it will come into effect in late 1977 or early 1978. It is, however, not expected that the effects of the directive would be more than modest for some considerable time. In the long term it may be hoped that competition for public contracts throughout the Community will build up, but its development is likely to be of slow process. In any event, the possibility of increased competition for its contracts can hardly fail to be advantageous for any public, as indeed for any private, purchaser.

I understand that the CBI is generally in favour of early liberalisation of public supplies contracts. This is what we would have expected, since in our view British industry can gain from the Supplies Directive and the CBI's attitude accords with the present emphasis on exports. Nevertheless, the CBI has some reservations about certain aspects of the directive, and has made some detailed suggestions for amendment. In particular, it is looking for closer monitoring of the working of the directive.

I can certainly assure the House that the Government regard an adequate system for monitoring the operations of the directive as of the utmost importance. We want to be sure that it is operated by every country in a way which is equal and fair. The machinery for ensuring this will be an advisory committee, on which every member State, including ourselves, will have a place. It will be the advisory committee's job to carry out the monitoring of the operation of the directive. The directive itself does not lay down how the advisory committee will carry out its function because this is a matter for the committee itself. We shall, of course, insist in Brussels on an effective system of monitoring through this advisory committee.

I can equally assure the House that there is no doubt that there will be considerable collection of statistics and other information from member countries in order to assess the effectiveness of the directive and whether it has been operated with equal fairness by all members. Indeed, my own feeling is that one of the problems may well be to avoid engaging in collecting too much information, because not only would this add to the administrative burden on the public service in this country and then that of other countries but it would be difficult to extract meaningful conclusions from the information collected.

We have also proposed that there should be formal machinery for a review of the directive after two to three years' operation. I am glad to say that the Commission appears to have accepted this proposal in principle. Under this review, when the time comes we shall seek to get any improvements which may be necessary.

I know that local authorities are somewhat concerned about two issues raised by the directive. These concern its effect on standing offers and approved list procedures. Standing offers are arrangements with contractors whereby a standing offer to supply certain items over a period is agreed, instead of separate contracts for each batch of goods. We see no reason why we cannot reach an accommodation on this point which will allow the system to continue.

On the second point—that is, the question of approved lists—there is nothing in the directive to prevent the operation of approved list procedures, but, of course, advertising will be necessary.

Finally, I come to the second document before us, the draft Council resolution on third-country products. Broadly its purpose is to prepare the way for a common policy towards third-country products and in the meantime to make it easier for the Commission to approve proposals from member states to refuse access to public contracts, whether they are advertised under the terms of the directive or not, to any such third-country products which are causing economic difficulties. This, I believe, is a sensible safeguard which the Government will not hesitate to use if the need arises.

The directive and the resolution are aimed at improving the liberalisation of trade and production within the Community, and I hope the House will see fit to take note of them.

5.57 a.m.

Mr. John Davies (Knutsford)

The one thing that is certain beyond words is that the Government will not have a lot of information or advice from the House this morning on the subject of these proposals. It is unlikely, in view of the time at which they are being debated, that there will be a whole-hearted batch of information deployed on the subject. I feel a little worried that that should be so, because the directive and the resolution in question touch on a matter of substantial importance not just to those people who are concerned with the awarding of contracts for supply throughout the country and the Community but, naturally, to those who are concerned with supplying.

The trouble about these proposals is that they constitute to a large degree all pie in the sky or pig in a poke. The truth is that they are modelled almost precisely on the previous public works supply contract arrangements which, as the Minister has said, we inherited on becoming members of the Community. I think it is well known that those provisions constitute some of the most ineffective provisions of any kind that the Com- munity has put together. They have had simply no effect whatever in terms of the widening of the availability of public works contracts to suppliers in various countries.

It seems a pity that the Minister, in opening this matter, has had to say that he thinks it can only be advantageous to move in precisely the same direction on the basis of supply as we have done on works. It must be very questionable whether that is so. I for my part —I have no remit to speak for anybody except for myself—having been concerned with examining the documents in question, regard them as wholly unsatisfactory as they stand. They appear to do a thing which industry not just in this country but throughout the Community would desire, and that is to provide a much wider availability of public supply arrangements and a much wider range of supplies, but in fact they do no such thing.

We in this country have the habit of being more observant of the provisions of such directives than some other members of the Community, engaging in arrangements with other suppliers in the Community and expecting little counter-benefit to ourselves.

I must therefore say at the outset that, as they presently stand, these proposals are a danger to us instead of the benefit which our industry, I believe, and the industries of other countries would wish them to be. Although I speak as a lone voice this morning, giving the view of the House on the matter, I do so with some determination, and I have to tell the Minister that I believe that he would be extremely unwise in the interests of this country to accept the two documents as they stand. He would be opening up this country to risks without any countervailing benefits whatever, and I must ask him to give careful consideration to the representations which I make, even though, as I say, I speak at this moment as a lone voice.

Moreover, the directive raises an issue of singular importance which warrants at least being stated so that it is on our record. The Minister pins a good deal of hope both on the activities of the advisory committee and, more particularly, on the review of the directive. As for the advisory committee, one can hope that it will adopt adequate and sensible measures of monitoring, but we have no assurance about that. At the moment of accepting the directive, we have no assurance that that will be so. Therefore, we find ourselves caught with proposals with severe implications—proposals which in other circumstances we might greatly welcome—while having none of the corresponding assurance which should go with the certainty that the whole of these proposals will be the subject of careful scrutiny and monitoring by the advisory committee as we go along. I consider, therefore, that the directive is defective in this respect, is bound to cause concern, and may well cause damage.

Second, there is the question of the review, to which the Minister attached some importance. The truth, as we all know, is that once one is engaged with Community directives—at which point one has arrived, if they are on matters of any importance at all, by the route of unanimity—one is stuck with them unless one can revise them by the route of unanimity. It is all very well to say that in a couple of years we shall have a chance to look at everything and we can put right anything which we do not think was right in the first place. In fact, that is far from being certain. The truth is that the Minister, or one of his colleagues, would have to go to the Council of Ministers and there try to find a sufficient degree of unanimity for such changes as would give effect to the purposes he sought.

It could well be that he would not be able to do that. We have heard a good deal, quite rightly, about the problems of the horse-trading and bargaining that goes on for one advantage as against another. Perhaps the Minister would find himself caught with a series of bilateral bargains to try to ensure the very minimum of reasonable treatment within the framework of the public supply contracts in order to achieve the changes he wished. But were he not to achieve that degree of bilateral agreement with individual member States and thereby reach unanimity in the Council, we should find ourselves caught in perpetuity with what would basically be a highly unsatisfactory set of provisions.

I gather that the House is being asked to take note of the directive and reso- lution in a favourable sense, and the Minister rather gave the impression that the Government regard these as being good and sensible proposals for the openings of the Community's commercial activities. Perhaps they could be, but that is not the point. We may find ourselves as a result of this morning's somewhat inadequate discussion caught in what may in the future be substantial commitments to advertise and allow supplies to come in from a variety of different member States, with no corresponding offsetting advantage whatever.

For my part, I can only say to the Minister that if he takes that course and agrees to the proposals in their present form, even with all the safeguards which he thinks he has in the advisory committee and the review procedure, he may be the perpetrator of a major piece of damage to British industrial interests and the recipient of no piece of industrial advantage.

6.5 a.m.

Mr. Max Madden (Sowerby)

At this hour of the morning I shall be brief.

I am greatly indebted to the right hon. Member for Knutsford (Mr. Davies) on two grounds—first, because he has touched on many of the points about which I feel concern; and, secondly, because he is the Chairman of the Scrutiny Committee, which has enabled this House to discuss this directive, even at this extremely late hour. We owe a debt of gratitude to him and to his Committee for recommending the directive for discussion in the House.

The right hon. Gentleman said that the directive was a matter of concern. That concern is underlined by the anxiety which surrounded an earlier directive on public works introduced in 1971 relating to civil engineering contracts of £400,000 and above. That matter caused widespread comment throughout the civil engineering industry and associated industry.

The matter can be summarised in the following way. It is feared that the operation of this directive, if allowed to stand without modification, will mean that the United Kingdom will observe the directive to the letter, whereas other member States of the Common Market will not do so. Recent figures compiled by one source have shown that Britain has advertised 2,500 contracts within the Common Market, whereas Germany has advertised 800, France several hundred fewer, and the Italians only three. It is interesting to note that the Italian Government are being brought before the European Court of Justice to inquire into their extremely low level of advertisement and the seeming non-observance of the directive.

In view of this situation, it is imperative that effective safeguards be introduced into this directive, and I believe that they need to be stronger than the Minister has indicated to date.

It is apposite at this stage to draw attention to a letter sent to me by the Federation of Civil Engineering Contractors, and, indeed, copies of the letter were circulated to other Members of Parliament. The letter said: We strongly support the ideal of an open market throughout the 10 nations, but we think you should know that our experience shows that the practice falls far short of the ideal. United Kingdom public authorities have been applying the works directive to the letter but the other nations give it scant observance. The result has been that the British construction market has been laid wide open to competition (which we don't object to) but we have no reciprocal opportunities on the Continent. We believe that the public supplies directive will present a repeat of this experience. It is essential that effective safeguards he built into the proposal. The fact that the EEC authorities have told us that other nations would object to the inclusion of effective monitoring and enforcement procedures demonstrates the importance of vigilance. We are seeking to ask the Minister to endeavour to persuade other members of the Common Market to make a modest concession—namely, that not only should there be advertising of tenders of amounts of £40,000 but that publicity should be given to whom the contract is awarded to eventually. This would help in the monitoring process, about which we are concerned. The directive has reference to the United Kingdom. Because we spend significantly more in terms of public expenditure than do the other member States of the EEC, suppliers of such items as office furniture, office equipment, and so on, particularly look to the United Kingdom as a lucrative market for their manufactured goods. For that reason alone we should be insisting on much stronger safeguards. Secondly, we should also look to the records on the observance of a public works directive which we considered earlier.

Finally, we should have regard to the effect that this will have upon large local authorities and consortia of local authorities and many Government Departments which hitherto have adopted and pursued a "Buy British" policy, because, if the directive is enacted and pursued with vigour by competitors within the Common Market, local authorities in areas of high unemployment could be put in the embarrassing situation of having to award contracts to foreign suppliers at the expense of local suppliers.

For all those reasons, I ask the Minister to consider carefully the modest request that is being made by those concerned about these matters for contracts to be advertised when they are awarded. This is a modest and minimum demand but one which if it could be met by our partners within the Common Market would help to make the directive a little more acceptable.

6.11 a.m.

Mr. Denzil Davies

I hope that I may have the leave of the House to reply to the debate.

Despite the fact that the hour is late, or early as the case may be, we have had an interesting debate, and I am grateful to the right hon. Member for Knutsford (Mr. Davies) and my hon. Friend the Member for Sowerby (Mr. Madden) for raising some important points. As the right hon. Member for Knutsford said, this is an important directive, and I appreciate its importance and the dangers that could arise to this country and to British industry if there were not reciprocity between us and the European countries.

We were conscious of that when we sought to strengthen the directive originally, and I should tell the House what we have tried to do. Right hon. and hon. Members may not agree that it is enough, but we have tried to strengthen the directive in three ways. The first way is by seeking to establish the advisory committee. I think that the committee will be effective. Other parts of the directive may not be, but when the directive is agreed the advisory committee will be established and will monitor these contracts. We shall he a member of the committee and be able to ensure that there is a certain amount of reciprocity and that the rules are not abused or ignored. I think that the committee will go a long way towards meeting some of the problems.

We also pushed for an increase in the threshold. My hon. Friend mentioned a figure of £40,000. This was mentioned originally, although it is not in the directive. We are almost certain that we can get agreement on a threshold in excess of £100,000. This would mean that the directive would cover only about 20 per cent. in value of the total contracts awarded by central Government and local government.

Thirdly, we have tried to ensure that all the provisions of the directive will operate in all the member States. Having said that, I accept the misgivings that have been expressed in this debate, and if more hon. Members had been present no doubt misgivings would have been expresssed by others as well. What has been said is possibly a reflection of some of the doubts that would be expressed by hon. Members in general.

Mr. Nigel Spearing (Newham, South)

My hon. Friend said twice that the Government would try to get reciprocity, or try to do something else. If the ostensible purpose of the measure is to give complete fairness and impose reciprocal obligations, why does my hon. Friend use the word "try", rather than "can"?

Mr. Davies

I use the word "try" because some of the proposals put forward have not found acceptance by other countries of the Community. A number of other countries do not feel that there is a danger, or perhaps there are other reasons why they do not wish to accept what we put forward. The point made by my hon. Friend the Member for Sowerby about advertising contracts seems reasonably fair, but one or two other countries are not happy to go along with that, and my hon. Friend will appreciate the situation if this continues.

I take note very fully of what has been said. We will go back and do our utmost to strengthen this directive still further, within the confines and limitations of the kind of situation in which we are placed. We are dealing with eight other member States, and it is not always possible to be completely negative in these matters.

I accept what has been said about misgivings, but I assure the House that it is not our purpose to damage in any way British industry's prospects of employment in this country. I hope that the House will accept the assurances that we are concerned about this matter and that we will do everything we can to strengthen the directive still further.

Question put and agreed to.

Resolved, That this House takes note of Commission Documents Nos. R/1361/73 and R/877/75 on Public Supply Contracts.