Vincent Cable on competition and the Lisbon Treaty

6.56.32pm GMT Thu 7th Feb 2008

[Feb 6] Vincent Cable (Twickenham, Liberal Democrat): I had assumed that there would be quite a high degree of consensus on this part of the treaty debate.

After all, as the Conservative spokesman conceded in his peroration, we are talking about the single area that almost everyone accepts represents an achievement on the part of the EU. Equally, the six provisions in the treaty relating specifically to economic matters are not especially controversial. They do not apply to the euro and, weak though they are, they are broadly helpful to the UK where they apply to intellectual property rights and self-employment. The other major provision relates to social security and is governed by veto, so the economic clauses do not contain an enormous amount to get worked up about.

The Sarkozy change is one issue of controversy, and the hon. Member for Runnymede and Weybridge (Mr. Hammond) managed to make a half-hour speech out of it. He massively overstated his point, but I happen to agree that it is unhelpful in the extreme that economic nationalisation should have emerged, in France and elsewhere. In addition, the concession made by the British Government may be symbolic but it is rather damaging.

The right hon. Member for Leicester, West (Ms Hewitt), the former Secretary of State for Trade and Industry, made it clear that absolutely nothing has changed legally, and that was helpful. Even so, the concession represents a step backwards in political terms, and that is why we have tabled some amendments to ensure that that aspect of the treaty is monitored as it proceeds.

Rob Marris (PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office, Wolverhampton South West, Labour): The hon. Member for Runnymede and Weybridge (Mr. Hammond) decried President Sarkozy for saying that competition should be a means and not an end. I do not agree with President Sarkozy about many things, but in this case I do. However, the Tories seem to see competition as an end in itself, thus making a fetish of what is a means to greater prosperity. Does the hon. Gentleman agree that to make competition an end in itself is economic reductionism of the worst order?

Vincent Cable (Twickenham, Liberal Democrat): Of course competition is a means rather than an end, but the French President is seeking ends that are based in economic nationalism. Most of us feel that that is extremely unhelpful in the context of the economic union.

The Secretary of State spoke about the fundamentals of the single market, and he was right to begin by emphasising that the single market is the bedrock on which the EU is built. It is the EU's greatest success, and it underpins the rise in living standards that we all enjoy. The common market, followed by the single market, has attracted and sustained the membership of countries from southern and eastern Europe, permanently liberating the first group from fascism and the second from communism.

Those are major achievements, and we should underline the major contribution that the single European market makes to the UK economy. We often take it for granted, but roughly 63 or 65 per cent. of British visible exports now go to the EU, compared with 43 or 45 per cent. in the mid-1970s. The EU market represents some 40 per cent. of total world trade, so it is an enormous entity into which we are fully integrated. Britain has benefited disproportionately from the very large amount of inward investment in the single market that has taken advantage of its unified characteristics.

Those are major benefits, but I often meet people who would be described as Eurosceptics-I am talking about people old enough to have been able to make their choice in a referendum-and they say, "We voted to join the common market, not for silly political things like square tomatoes, straight bananas and abolishing double-decker buses." From the outset, we must acknowledge that the establishment of the common market and the single market had very far-reaching implications for how we do things. They include many of the things that people often do not like but which are the flip-side of the benefits.

Let us remind ourselves of how the EU is structured. The simplest base is the free-trade area. Superimposed on that is a customs union, and on that a common market that involves freedom of movement of people and capital. That freedom of movement explains why so many foreigners have come here-more than 600,000 from eastern Europe alone. However, we should also recall that 750,000 Brits have gone to the south of Spain and 300,000 to France. No doubt they are regarded in much the same way as we regard the eastern Europeans-

Frank Dobson (Holborn & St Pancras, Labour): Only they're no good at plumbing.

Vincent Cable (Twickenham, Liberal Democrat): The right hon. Gentleman is right. The Brits are good at buying houses, but not at plumbing. On top of all that, there is the competition policy that is essential for cross-border mergers and monopoly relationships. We need to have a discipline governing state aid, and finally there is the single market. The right hon. Member for Suffolk, Coastal (Mr. Gummer) helpfully reminded us of the major contribution made by Lady Thatcher-Mrs. Thatcher as she then was-in introducing the single market. She was acting on the advice and encouragement of Lord Cockfield, who was the real inspiration behind the move.

It is worth recalling what the then Prime Minister said, as in no sense was she naive about the implications of the single market. In her diary, she wrote:

"British business would be amongst the most likely to benefit from an opening up of other countries' markets...The price which we would have to pay to achieve a Single Market with all its economic benefits...was more majority voting in the Community."

She therefore understood very clearly the price that had to be paid if the objective of a single market was to be achieved.

Similarly, it is inherent in the creation of a single market that there is more harmonisation. That can often be very irritating and produce slightly absurd consequences, but it has to happen. Anyone who has been involved in the standardisation process more generally, such as through the International Organisation for Standardisation in Maastricht, will know that there has to be a degree of harmonisation if meaningful markets are to be achieved.

The classic case is the square pin plug that does not fit in round sockets. At some point, people have to agree that there has to be interoperability and that means that there has to be harmonisation. However, harmonisation can be frustrating, and it imposes some of the regulatory costs about which the right hon. Member for Wells (Mr. Heathcoat-Amory) was complaining.

William Cash (Stone, Conservative): The hon. Gentleman is making an interesting and fair analysis, but he has not yet mentioned one of the crucial problems. I voted for the Bill that created the single market when it had its Second Reading in this House, but I said:

"The European Court of Justice will be involved...Who will control it all?"-[ Official Report, 23 April 1986; Vol. 96, c. 379.]

The same question arises in connection with the matter that we are discussing today, and for the same reasons. However, the accumulated functions and the acquis communautaire have made the cost of over-regulation intolerable, and my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) was right to say that the European Commissioner had put that cost at £450 billion a year.

Vincent Cable (Twickenham, Liberal Democrat): I will come on to the cost of regulation later. Of course there has to be an arbiter, because there will obviously be disputes. That applies to all international organisations. I am sure that the hon. Gentleman, who is a global liberal in an economic sense, will accept that the World Trade Organisation has to liberalise trade. It has dispute panels, and bodies comparable to the European Court of Justice that make rulings in much the same way as the ECJ does. That is the only way in which trade can proceed.

Mark Hendrick (PPS (Rt Hon Jack Straw, Lord Chancellor), Ministry of Justice, Preston, Labour): On bringing in common standards, does the hon. Gentleman agree that harmonisation has meant that lots of different standards in different countries have been torn up, particularly in many western, developed EU countries? National regulation has been removed and European regulation has been introduced. In eastern European countries, where there was no regulation, standards have been raised as a result. Some standards have been lost as harmonisation has taken place, but some standards have been raised.

Alan Haselhurst (Saffron Walden, Deputy-Speaker): Order. May I make a plea for short interventions? There is precious little time left, and a number of hon. Members are seeking to speak.

Vincent Cable (Twickenham, Liberal Democrat): I agree with the point made by the hon. Member for Preston (Mr. Hendrick).

John Gummer (Suffolk Coastal, Conservative): Does the hon. Gentleman accept that common markets that did not set up a firm institutional base with a court have been almost stillborn? Common markets need such a base if they are to work.

Vincent Cable (Twickenham, Liberal Democrat): The right hon. Gentleman is correct. In my earlier professional career, I tried to help establish common markets in Latin America and Africa. All of them failed because they lacked strong institutional underpinning. The European Union is the one that has succeeded. Of course, that underpinning does not have to be rigid; one of the major innovations that is not referred to in the treaty, but which has become part of Commission practice, is what is called mutual recognition-recognition that we are gradually deepening the single market through mutual acceptance of other countries' rules. That is why there is now mutual recognition of professional qualifications, for example. That does not have to take the form of blanket harmonisation. Those moves are progress.

I shall cite a few topical recent examples of Commission and Court rulings that have taken forward competition policy and the single market in a common-sense, practical way to the benefit of consumers. First, the European institutions stood up to the credit card companies on the charges that they imposed on shops for clocking up credit card transactions. The Office of Fair Trading had a go at the companies, but it was the European Union that really made the big difference to consumers.

The European institutions tackled the monopoly that British Airways and Virgin had on transatlantic flights-an issue that no British Government had been willing to deal with-and opened up the low-cost airline business. We may have doubts about that business for environmental reasons, but from a consumer point of view it was a major advance. [Interruption.] As the hon. Member for Wolverhampton, South-West (Rob Marris) is trying to prompt me to say, there have been considerable advantages on telephony, as a result of roaming charges, and before that, there were many significant advances on telephone costs. Those are all achievements of the single market concept.

The European institutions also stop Governments doing foolish things. I am tempted to mention Northern Rock. Of course we can all criticise what the Government are doing, and the press will do so, but the one institutional constraint on the Government's aid to the bank is the European Union. That is what is binding the Chancellor of the Exchequer; he is totally constrained by the EU. Those are some of the many practical ways in which the single market benefits us.

Mark Pritchard (Wrekin, The, Conservative): I accept what the hon. Gentleman just said, but does he accept that if we signed up to a single monetary policy, there would be greater restraint on future Governments, whether Labour or Conservative?

Vincent Cable (Twickenham, Liberal Democrat): Or Liberal Democrat, for that matter. Yes, there almost certainly would be greater restraint, but I think that we all accept that that is not the debate that we are having now. I think that all parties are committed to having a referendum on that possibility, if it arises in future, as it may well do.

Of course there are concerns about the single market. First, many UK businesses worry that their liberalisation is not reciprocated. A few days ago I was at Royal Mail's south-west London sorting office-a very efficient installation. When I looked out of the window, I saw the headquarters of TNT, a Dutch competitor. The general manager said, "I'm all for liberalising the Royal Mail market, but why can't the Germans, the Dutch and the French do the same?" and he is quite right. The logic is that prising open the other European markets will require stronger, not weaker, intervention by the Commission and the European Court of Justice.

Precisely the same point can be made about areas in which there is frustration about the slowness of the single market's progress-a point to which the Conservative spokesman referred. The obvious example is services. It has taken years to get any kind of agreement on services in Europe. The agreement that we reached in 2006 is fairly weak; it does not respect the underlying principle of the origin of the country concerned, which is what would really open up a services market, which does exist. Clearly, for services liberalisation to progress faster, there would have to be more qualified majority voting and more European Union decision making on the matter.

Finally on the single market, the right hon. Member for Wells said that all progress has come at a price-at the cost of regulation in Europe. He is right up to a point. There is a lot of unnecessary bureaucracy associated with European regulations and directives. Of course, we have often compounded it by gold-plating them here. The Secretary of State was right to point out that there is now a process-the Lamfalussy process-for making the system much more efficient. The question that I would pose to the right hon. Member for Wells if he was still in the Chamber is this: what is the counter-factual case? What is the alternative to having a bureaucratic regulation? It is probably having 27 bureaucratic regulations across Europe, which would compound the cost many times over.

Let me briefly cover the items allocated for today's debate, and to the treaty powers relating to economic matters. The euro procedures clearly do not apply; I answered an intervention on that point. Other issues include the definition of the framework for commercial policy, which I do not think is controversial, and the co-ordinated approach to self-employment. I would have thought that such an approach was sensible. We have rules governing freedom of capital and professionals, but not self-employment, as would be logical.

The issues to do with intellectual property rights are trickier. As I understand it, the measures will make it easier to have common European Union rules on copyright, trademarks and patents, which will make it easier to do business that involves them, and that will be good for British intellectual property right holders. However, as the Secretary of State conceded, when it comes to patents, the tricky issue of language has not been resolved. We will still not have unanimity, and that is a source of frustration. As the author of the Cable Bill-that famous copyright protection legislation-I look forward to seeing copyright protected across the whole of Europe, in a way that accords with the sanctions that I introduced in the House. Those are not issues on which there is a great deal of controversy.

On the important contribution made by the right hon. Member for Holborn and St. Pancras (Frank Dobson), one of the less discussed issues is that of what are called general services, of which the NHS is an obvious example. My understanding of the protocol governing the treaty is that it does not take us very far towards a common approach to NHS entitlements. In fact, article 2 of the protocol says:

"The provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organise non-economic services of general interest "

The basic principles of the NHS would therefore remain pretty much intact, as I understand it.

However, I disagree with the right hon. Gentleman to some degree. He was right to say that the Liberal Democrats were sympathetic to the Watts ruling. The question that we would ask is this: if it is right for people to buy a house, travel or exchange goods in Europe, what is wrong with their trying to pursue a higher life expectancy in countries that have better cancer treatment? Surely common sense would say that that is a reasonable expectation in an integrated market. People will do that, and as long as the basic frameworks of the NHS remain intact, I do not see anything fundamentally wrong with enlarging the concept of a single market to include health.

Frank Dobson (Holborn & St Pancras, Labour): If someone buys a house in Europe, they are spending their own money. If someone gets NHS treatment in Europe, they are spending somebody else's money that might have been spent in the national health service.

Vincent Cable (Twickenham, Liberal Democrat): That is absolutely true, but the right hon. Gentleman was also questioning people's ability to spend their own money, was he not, through co-financing? That is a much bigger debate, and I understand the sensitivities around it. We share a commitment to the British national health service, but we also want choice to be extended.

Finally, I shall deal with the issue on which the Conservative spokesman spent so much time: the threat to the competitive market within Europe presented by the Sarkozy approach to national champions. The hon. Member for Runnymede and Weybridge is right to stress the current spasm of economic nationalist thinking about energy companies and so on, not just in France but in Spain and Italy and sometimes in Germany and elsewhere.

We should not be totally self-righteous about this. We have had and continue to have national champions of our own, but they take a different form. The debates that I have tried to provoke in the House on BAE Systems relate to a British national champion where politics and commerce have become rather dangerously intertwined. We should not be too pious on the matter, but the hon. Gentleman is right that there was a retreat from a commitment in the treaty to an undistorted internal market.

The objective legal position remains very much as the right hon. Member for Leicester, West said: we have exactly the set of rules governing the single market and competition policy that prevailed before. Neelie Kroes, the Dutch Liberal who presides over competition policy, has spelled out clearly where we currently stand. The protocol on internal market and competition which was agreed at the European Council clearly repeats that competition policy is fundamental to the internal market. It retains the competition rules that have served us for 50 years, and reaffirms the European Commission's duties as the independent Commission enforcement authority for Europe. Nothing formally has changed, although the hon. Member for Runnymede and Weybridge is right that there is a change of mood that is potentially worrying and it is right to signal our concerns about that.

In conclusion, it has always been understood that we on the Liberal Democrat Benches are strong supporters of the European project. We are not uncritical. There are areas where we have fundamental disagreements. We have been critical of agricultural policy, particularly its protectionist features. We have been critical of the European budget and voted against it a few weeks ago. We believe that there should be more subsidiarity, including in areas of social policy, which should not be prescriptively applied at a European level. None the less, the fundamentals of the European project are sound, they are reflected in the treaty, and that is why we support it. [http://tinyurl.com/2xvme6]