HC Deb 13 September 2004 vol 424 cc1096-104

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Watson.]

10.40 pm
Keith Vaz (Leicester, East) (Lab)

Thank you, Mr. Speaker, for giving me the opportunity to raise in this House the very important topic of economic reform of the European Union. The House has never before held an Adjournment debate on the Lisbon agenda. I am glad that my hon. Friend the Financial Secretary is here. I congratulate him on his recent return to the powerhouse of the Government's economic policy, which is so different from post office closures. I am also delighted to see my hon. Friend the Minister for Europe.

After the Lisbon summit on 24 March 2000, the Prime Minister said in his statement to the House: The Lisbon European Council represents a turning point in Europe's approach to economic and social policy. With a sound macro-economic framework in place and the euro safely introduced, the concrete actions agreed at the Council should help to deliver an increase in the European Union employment rate over the next 10 years."—[Official Report, 27 March 2000; Vol. 347, c. 22.] That was a bold and impressive commitment by the Prime Minister to the economic reform agenda.

We are now rapidly approaching the mid-term of the Lisbon agreement, and I value the opportunity to debate Britain's position and what needs to be done to move the agenda forward.

At the Lisbon European Council, the member states agreed to put economic and social development at the very top of the political agenda in order to create a European Union that would position itself in the lead of the international financial markets. The Lisbon summit committed all national governments to a 10-year programme of reform that was going to make the EU the most dynamic knowledge based economy in the world by 2010". I had the privilege of being at the Lisbon Council as the then Minister for Europe. Lisbon was different because it set out a series of benchmarks. Its language was not the usual Eurospeak whereby everybody congratulates everybody about the success of a summit, but a clear and precise list of achievable objectives.

The key targets and objectives of the Lisbon agenda were employment; research and innovation; the single market; social cohesion; and sustainable development and the environment. The main benchmark on employment was to reach, by 2010, an overall employment rate of 70 per cent. of the EU population. The female employment rate was to rise to 60 per cent., and the employment rate for older workers was to rise to 50 per cent. of the EU population. The Lisbon agenda also set out to increase the retirement age by five years and to reduce the number of 18 to 24-year-olds with only basic secondary education by 50 per cent.

The benchmarks for research and innovation would see spending on research and development approach 3 per cent. of gross domestic product by 2010 and 100 per cent. of schools connected to the internet by 2002.

In terms of the development and progress of the single market, the Lisbon agenda stated that we would see full implementation of the risk capital action plan by 2003, and of the financial services action plan in 2005. We were to have a transposition rate of 98.5 per cent. for internal market directives. No internal market directives were to be more than two years overdue in their transposition.

The energy markets were to open for business by 2004 and for domestic users subsequently. Finally, the single market goals set out the prospect of a single European sky by 2004.

As for social cohesion, Lisbon was meant to halve the number of school leavers not continuing in further education, and reduce the numbers living at risk of poverty by 2010.

On sustainable development and the environment, visible progress towards reducing greenhouse gas emissions was suggested. Lisbon set a clear target for electricity generated from renewable resources as well as ending the loss in biodiversity. Lisbon agreed to recycle 55 per cent. of all waste by 2008.

The United States is the main economic challenge to the European Union. The current EU, at 25, has a single market of approximately 450 million consumers compared with approximately 380 million in the US. At Lisbon, we were informed that the US managed to create 10 million jobs in the 10 previous years, whereas the EU created only 1 million.

That is why, in my view, it is vital that all member states adopt the euro. Only with the same currency and the minimising of trade barriers can the EU catch up with the US. We have to encourage the citizens of Europe to spend their money in the eurozone instead of elsewhere.

The Lisbon agenda set out ambitious goals and, although progress has been made, much more needs to be done. It is important is to see the Lisbon agenda as a clear strategy forward for Europe. Only by setting the targets at a high level will we progress in the way that is necessary for the stability and the future of the European Union.

The mid-term review of the Lisbon agenda, which is due in March 2005, is intended to give an indication of how Europe is doing, and also to consider how the Lisbon goals can be best met by 2010, especially in the light of enlargement and the new member states.

Although the European Council reaffirms that the process and goals remain valid, a change of pace of reform is needed to achieve the targets by 2010. I want to know from the Financial Secretary the Government's view of the way forward. Overall, a north-south divide has emerged between the relatively good achievers—Austria, Denmark, Luxembourg, the Netherlands, Sweden and the United Kingdom—and the Mediterranean's less successful countries such as Greece, Italy, Portugal and Spain. The employment rate has grown, but not substantially.

Productivity growth remains low, and substantial weaknesses remain in competitiveness and the development of the internal market. Only last week, the Chancellor of the Exchequer demanded a new sense of urgency from Brussels, and rightly said that the so-called Eurocrats must drop their inward-looking mindset and tackle the growth problem immediately.

My constituents in Leicester, East need the Lisbon agenda to succeed. So many businesses in Leicester trade with the rest of Europe, as the Chancellor of the Exchequer noted when he recently visited the city. The main problem that they experience is the over-regulated way in which some other EU countries operate. More jobs will be created in Leicester if the goals set out in the Lisbon agenda are met. That applies not only to the textile industry, which has been the bedrock of the city, but the new service industries and engineering.

As a city, we are ideally placed in the heart of England, with major road networks all around us. We can succeed if the economic climate is right in Europe and we can become a powerhouse of financial prosperity. We are already a Premiership city as far as trade is concerned. Although the Foxes have left the Premiership, they will be back next season, following their splendid victory over the Minister for Europe's football team on Saturday.

As hon. Members know, in addition to the mid-term review, the former Prime Minister of the Netherlands, Wim Kok, is heading a high-level group, which has been commissioned to carry out an independent review of the achievements on the Lisbon agenda so far. The decision to set up that group was made by the European Council in March 2003. The high-level group is composed of several highly qualified individuals who are able to reflect the views of all stakeholders. Among those represented are Mr. Will Hutton, chief executive of the Work Foundation, and Mr. Naill Fitzgerald, chairman of Unilever. The remit of that high level group is to make proposals to the Commission to give new stimulus to the Lisbon strategy and improve delivery.

The report is due to be presented to the Commission by November 2004, and will identify the measures that have been taken so far in the member states' economies to achieve the Lisbon objectives and targets.

One of the key factors in achieving the goals set out in the Lisbon agenda and creating the most competitive knowledge-based economy in the world is accessibility to broadband. The online newspaper, euobserver.com, recently reported that the new member states are set to overtake the old EU 15 in broadband internet penetration rates by 2010. They are set for a rapid catching-up process that could see them forging ahead in the next few years. This is the enthusiasm and willingness on which the whole of the EU must build. All member states must be equally excited about strengthening their own standing, and thereby that of the whole EU. Equal commitment from the individual member states is the only recipe for success in the long term.

The enlargement of the European Union, increasing the number of member states from 15 to 25, was an extraordinary success, and Europe is now set to go forward in building on unity, strength and co-operation. A union of 25 member states has the possibility and capability to be a strong—indeed, the strongest—player in the world arena, but it needs structure and leadership in order to build on its strengths. The unique combination of diverse skills and cultural richness that defines Europe gives it every opportunity to achieve the goals that have been set out.

In just 33 days, on 1 November, the new President of the European Commission will start his term of office, and he has given a clear indication that he wants his Commission to be strong and united. Mr Barosso has stated that he intends to boost the Lisbon agenda and has promised that economic reforms will be at the heart of his five-year tenure. He will chair a group of Commissioners who will seek to enhance the reform process and give new impetus to Europe's economy. He has said:

"The goal of becoming the most competitive economy in the world is one we can achieve, and we should not feel discouraged".
Mr. Wayne David (Caerphilly)(Lab)

Does my hon. Friend agree that one issue that has to be tackled by the Commission and the European Council is the fact that so many nations agree to the directives that make up the Lisbon agenda but fail to transpose them into their own national law? My understanding is that, according to a report to the European Council produced in the spring, two northern European countries, France and Germany, were at the bottom of the league table in that regard, along with Greece.

Keith Vaz

My hon. Friend is absolutely right. That area needs to be looked at if we are to make the progress on the Lisbon agenda that I have asked for, and I hope that the new Commission will ensure that that happens. Given the quality of the people who have been appointed to it, I think that it can be achieved. I want to congratulate Peter Mandelson on his appointment as the EU Commissioner for the United Kingdom, with responsibility for the trade portfolio. Both he and the Spanish Commissioner will play an important part in ensuring that this agenda is furthered.

The EU is falling further behind the United States in terms of gross domestic product per head, and the growth has been below the target of 3 per cent. More labour needs to be employed more productively in the member states to generate growth. This requires an increase in both the employment rate and in investment which can only come about if we start taking the structural reforms seriously by relocating resources from declining to growing sectors. We have to give fiscal and structural policy a chance to put Europe back on the path of sustainable growth.

The responsibility for the success of the Lisbon agenda lies with all member states and their willingness to implement the targets. The Commission has few powers on national employment laws, social welfare legislation, tax rates and education and research policies, or any other tools to enhance EU competitiveness. The role of the Commission, therefore, is to assist the national Governments in finding the right policies and setting a framework for economic reform.

Intrinsically linked to the development of the economic union is the development of the political union. At the Brussels summit on 18 June, all member states agreed to the wording and contents of the draft treaty of the European Union. The ratification of that treaty is a unique development in the relationship of the member states. The EU constitution will finally give Europe stability and strength, after two decades of constant negotiating of new treaties. For all the reasons put out by the Foreign Secretary and the Minister for Europe, it will consolidate the treaties that have gone before. In Britain, this means winning the referendum on the constitution over the next few months.

My view is that we are not lacking the political will to put our country at the heart of Europe. That has been the Government's agenda since 1997. What we need to do is to ensure that that political will is understood by the British people. That means that all Ministers must heed the words of the Prime Minister by making the positive case for Europe, so that people can form their opinions on the basis of what their elected leaders say. And the Government must explain precisely what they intend to do.

We have great challenges ahead, but Europe is the reality in which we live and work, and Britain needs strong leadership and guidance in the important period that lies ahead. Next year will be crucial: we will take over the presidency of the European Union, and in July we will host the G8 summit in Scotland. That will put Britain at the centre of attention and action, and many countries in the EU will look to Britain for guidance.

To remain a strong international player, Britain must adopt the constitution, implement the euro, and look to its partners in the G8 to work towards sustainable development and fair trade. I call on the Government to go out and make that case for Europe. I know that the Minister for Europe and the Financial Secretary will do so in the months that lie ahead.

As the Chancellor has said, there must be a speedier implementation of EU agreements and policy making at national level to create sustainable growth and more and better jobs. Higher employment rates are critical to achieving growth and to further social inclusion. On Lisbon, it must be our Government, who are so much in the forefront of pursuing the reform agenda through the excellent work of the Prime Minister, the Foreign Secretary, the Chancellor and the Minister for Europe, who hold Europe to account. It is our agenda: let us make it work for the people of Britain and for all of Europe.

10.56 pm
The Financial Secretary to the Treasury (Mr. Stephen Timms)

I congratulate my hon. Friend the Member for Leicester, East (Keith Vaz) on securing this debate, and I am grateful to him for his kind remarks. I welcome the early opportunity that he has provided for me to respond to the issues that he has raised.

We are strong advocates, as my hon. Friend said, of economic reform in Europe. Europe can only meet the challenges of globalisation by increasing the pace of reform. It has not been quick enough to date, as he has rightly pointed out. To realise the gains of globalisation, Europe needs to become more flexible, more open and more outward-looking.

In the past three years, cumulative economic growth has been 3 per cent. in Europe but 5.5 per cent. in the US and 6 per cent. in the UK. Living standards in Europe are a third lower than in the US. Eighteen million people in the European Union are out of work. US productivity is more than 14 per cent. higher. We need to speed up the pace of reform.

We are very pleased that, as my hon. Friend has pointed out, Wim Kok is chairing the high-level group on the mid-term review of Lisbon. We want to see that deliver a step change in the pace of reform. Last week, my right hon. Friend the Chancellor published the UK submission to Wim Kok's group, setting out proposals for sharpening the focus of the Lisbon programme and increasing the incentives for reform.

At this weekend's European Finance Ministers meeting in the Netherlands, there was unanimity that the Lisbon programme is getting more important, not less. The challenges of globalisation are coming faster—developing countries accounted for 5 per cent. of world manufacturing exports a few years ago, and will soon account for nearly 50 per cent. I was in China last week, and saw something of the pace of development there.

The challenge for Europe is to combine economic growth while retaining the priority on social inclusion that sets us apart from the United States. Raising employment is the critical link that will allow us to achieve that balance. As Wim Kok said at the weekend, there is no option of economic security without change. We all need to make labour markets more flexible and adaptable, and reform our tax and benefit system so that it pays to have a job.

The Lisbon programme has been expanded over the past few years, diluting its original aims. The International Monetary Fund suggests that there are now 102 Lisbon benchmarks. We need to prioritise. We need a renewed focus on the objective: long-term growth, through increased employment and productivity.

We need to benchmark member states' performance. We should introduce annual Lisbon score cards at spring council meetings to rank members states' progress with economic reform, and enable Europe's leaders to set out specific plans for reform in the year ahead. We need to do more to sell the benefits of reform to European's citizens, and explain the costs of inaction.

The goal of long-term growth demands, in our view, progress in five areas as a priority. The first is further regulatory reform, building on the four-presidency initiative of January this year to reduce the burden of new and existing legislation on enterprising and innovative businesses. The second is urgent reform of labour markets, with all member states implementing the November 2003 European Employment Taskforce report. The third is the taking of further steps to create a competitive single market, liberalising services and developing a more effective competition policy. The fourth is promoting innovation and enterprise, improving the regulatory environment, swift agreement on the Community patent and improved access to finance for fast-growing firms. The fifth is trade and investment liberalisation, with EU leadership in world trade negotiations and a stronger transatlantic economic relationship. Let me say a little about each of those.

Good regulation underpins effective markets. Proportionate, clear rules make it easier to deal with market failures, such as monopolies that raise prices and reduce choice; but badly designed or excessive regulation can have a heavy cost. It can discourage enterprise, markets can be made less dynamic, and competition can be stifled. There is persuasive evidence that regulation in Europe is dragging down growth. In the United Kingdom as much as 50 per cent. of new legislation originates in Brussels, so improving the regulatory climate means taking action at European level. That is why, with the Dutch, Irish and Luxembourg Governments, we launched our four-presidency initiative for regulatory reform, spanning this year and next year. It was endorsed by all 25 Heads of State and Government at the spring European Council. In addition, the Dutch and Irish presidencies have launched a major simplification exercise, requesting priority areas from member states. Some 20 Governments responded over the summer.

As we look towards the EU presidency, we remain committed both to implementing the measures we have already set out and to developing further proposals to improve regulation in Europe. That is a key pillar of our strategy for economic reform.

As for labour market reforms, Europe—as my hon. Friend said—is in real danger of missing the 2010 employment targets, particularly the one he mentioned relating to older workers. We cannot rely on smaller nations such as the Netherlands and Scandinavia to do well enough to allow us to achieve our goals; all of us need to reform. Unless we are much more successful in moving people from economic inactivity to productive work, we will not have the work force that we need. It is right to create flexible labour markets, and to equip people to cope with change—through investment in skills and training, through the best transitional help for people moving between jobs, and through policies to make work pay.

Member states need to act urgently to modernise the public employment services, using active job search to reduce long-term unemployment; to reform tax and benefit systems to tackle the disincentives to taking jobs; to ensure that we make work pay through targeted tax and benefit policies; and to invest in human capital to increase skills and lifelong learning. That approach has been successful in the UK, and needs to be taken up very widely.

The single market has been a big success story for Europe. It has allowed countries and regions to specialise in their strengths, and allowed companies to consolidate and become more efficient. It promotes the flow of ideas, and strengthens competition. It is estimated that since 1992 the single market has generated an extra £4,000 for every household in the European Union. Costs have fallen, and quality and choice have increased. But substantial barriers remain. Price differences suggest that competition is still not as open and fair as it should be. Too often Governments try to undermine market opening by building up national champions and protecting short-term interests.

So we have identified a number of priorities for extending the single market. Europe needs to stick to the deadlines and targets that it set itself in sectors such as telecoms and energy, which I know well from my previous work, as my hon. Friend mentioned. Political commitments that everybody signs up to need to be delivered. Moreover, competition policy at every level should be proactive and independent. The European competition authorities should not just respond to cases; they should be proactive in investigating markets and sectors. We need to reduce unnecessary, overly complex regulation, thereby cutting costs to businesses and employees and helping to make markets more open and dynamic. We also need to remove unproductive, old-style industrial subsidies, while allowing innovative approaches to tackling market failure.

Fourthly, enterprise and innovation are very important drivers of progress. To compete effectively in an integrated global economy, Europe needs to improve its capacity to innovate, and to build an entrepreneurial culture. Some member states stand out as strong performers, but as a whole Europe continues to underperform compared with major international competitors. For example, it lags behind the United States in 10 out of 11 European Commission innovation performance indicators, and rates of entrepreneurial activity are about half those in the US.

Europe needs to become a more attractive place in which to invest in research and development by improving the regulatory environment and the sustainability of research funding, and by achieving speedy agreement on the Community patent. It needs to continue to improve access to finance for new and fast-growing businesses—those that we need most to generate new jobs and to boost productivity. We have also proposed that the EU introduce a new competition for a city of enterprise, so that, just as we compete to become the capital of culture, we will compete to find the most enterprising town or city in Europe.

The last of the five areas concerns an outward-looking Europe. Greater external openness to trade and investment reinforces the drivers of productivity and growth. Structural reforms and more open global markets need to be pursued together. We need to turn away from an inward-looking trade bloc model of Europe and instead be outward looking and globally competitive. Concluding a successful and liberalising multilateral trade round is a priority. Following achievement of the World Trade Organisation framework agreement in July, Europe needs to maintain its commitment and flexibility, particularly on agriculture, to make real progress by the next ministerial meeting in December 2005. Protectionism is hurting our economies and those of developing countries. Global income could be boosted by $500 billion a year—two thirds of which would go to developing countries—by a good, liberalising, pro-development conclusion to the Doha round.

We need to deepen co-operation with the US, which is our biggest trade and investment partner. The EU and the US should work together to eliminate the most difficult behind-the-border barriers, and to reduce the costs for business and consumers arising from duplicated regulatory systems. We welcome the call at June's EU-US summit for the consulting of business and others on the future of EU-US economic co-operation, leading to a road map for enhanced co-operation at next year's summit. The study by the Organisation for Economic Co-operation and Development on the economic benefits of transatlantic liberalisation that my right hon. Friend the Chancellor and the US Treasury Secretary have called for will provide an important evidence base for that work.

Accelerating the pace of economic reform is vital if Europe's economies are to become more flexible, dynamic, competitive and outward looking, and if we are to create a truly global Europe. That requires making progress in dealing with reform of the common agricultural policy. Some progress has been made, but we need a great deal more. Work needs to be done on the EU state aid regime, in respect of which a number of difficulties remain. There is also a good deal of work to be done on the future financing framework. In our view, the current Commission proposals do not meet the demands and challenges that need to be faced.

We will continue to work with other member states on the priorities that I have set out: further regulatory reform; urgent reform of labour markets; further steps to create a dynamic and competitive single market; promoting innovation and enterprise; and trade and investment liberalisation. I very much welcome my hon. Friend's reminding the House of the importance to us all of making progress on the priorities set out—

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MADAM DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at ten minutes past Eleven o'clock.