House of Lords
Airports: Heathrow Third Runway
(10 years, 6 months ago)
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Lord Spicer
To ask Her Majesty’s Government what forecast they have made of the tax revenue which will be raised from employment and investment as a result of the construction of a third runway at Heathrow.
Lord Newby (LD)
My Lords, the Government have not made any forecasts of this type. The Airports Commission has been tasked with independently assessing the options for proposed new airport capacity and will present its analysis and conclusions in its final report in summer 2015. In the mean time, the Government do not propose to comment on any of the shortlisted options.
Lord Spicer (Con)
If it requires a third runway to make Heathrow fully effective, I suspect that many if not most of your Lordships would accept that it should be built. Indeed, I guess that many of your Lordships will agree with me that it is almost bound to be built at some point in the future. The Cornish, I think, would call that “shortly”, but we would just say “in the future”. There is only one supplementary question that I can think of to ask my noble friend—politely and agreeably, I hope—and that is: when?
Lord Newby
I am tempted, of course, to say “shortly”, but it is the next Government who will respond to the report of the Davies commission. However, I think that it is worth pointing out that the Davies commission concluded that although one new runway will be needed, it will not be needed in the south-east until 2030.
Lord Soley (Lab)
Does the Minister recognise, with the Chinese Prime Minister and trade delegation in town, that this will not be the first time that the Chinese have raised with us the lack of runway space at our premier hub airport for their expanding economy? Why, then, does the Minister persist with this silly idea that Britain is closed for business because we do not expand our airports?
Lord Newby
My Lords, it is not for the Government to decide the priorities of individual airlines flying out of Heathrow or anywhere else. However, the noble Lord will be aware that, in September last year, British Airways launched a new service from Heathrow to Chengdu. He will undoubtedly also be aware that our current bilateral flight agreement with China, which sets a constraint on the number of flights that we can have to China, is up for review. Discussions on that will take place next month.
Lord Brabazon of Tara (Con)
Does my noble friend have any estimate of the current number of people employed around Heathrow—not at Heathrow, but around Heathrow—in businesses directly involved with Heathrow, such as hotels, catering, freight and others? What would happen to them if Heathrow were to move?
Lord Newby
My Lords, I am not going to speculate on what might happen in any scenario, but one of the key points which I think lies behind the noble Lord’s question is that having an aviation hub in the UK is extremely important for the economy. The aviation sector employs tens of thousands of people and the Government believe that maintaining that hub status is very important.
Lord Barnett (Lab)
Would the Government care to give us a case for delaying the decision—or is it the Lib Dems’ fault?
Lord Newby
I am tempted to say that I sometimes think that everything is the Lib Dems’ fault. However, this is an extremely important decision. It is a difficult decision, and it is very important that it is taken after the fullest possible consideration of all the factors.
The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford) (Con)
My Lords, we will hear from the Liberal Democrats, if we may.
Lord Bradshaw
I wonder whether the Minister might turn his mind to the very effective competition that Gatwick and Birmingham are now providing against Heathrow. Perhaps he will he also say that this is not simply a matter of tax revenue; it is very wide-ranging research about the impacts on employment and revenue for the Treasury, which takes a lot of time. I am certain that whoever caused the pause did so in the proper interests of the country.
Lord Newby
My Lords, my noble friend raises a very important point—which is that whatever happens in terms of a particular airport in London in the future, it is very important that we have a range of airport capacity. Manchester Airport and Birmingham Airport play very important roles. My noble friend also referred to Gatwick. On current projections, Gatwick has spare capacity at the moment and will not fill it until about 2020.
Lord Davies of Oldham (Lab)
My Lords, will the Minister accept two propositions: first, that good aviation links are vital for Britain’s competitiveness and our future economic success; and, secondly, that to govern is to choose? What items in the manifesto of the two coalition parties carried the rubric, “We will make up our minds possibly in five years’ time on this issue”?
Lord Newby
My Lords, the noble Lord will have to contain his impatience as far as manifestos are concerned, I suspect. I would just point out to him and to the House that the five airports serving London currently offer at least weekly direct services to more than 360 destinations worldwide. That is more than Paris, Frankfurt or Amsterdam.
Lord Mawhinney
My Lords, in his earlier answer my noble friend correctly said that it is not the job of the Government to dictate to airlines to which airports they should fly. In the event that Heathrow ceases to provide a suitable hub for this country, given overcrowding, and airlines start to move out, is it thereby implied that it is all right for the Government to tell airlines where they should not fly from, even if it is not all right to tell them where they should fly from?
Lord Newby
My Lords, I do not think that it is a good idea for Government to try to micromanage the commercial decisions of individual airlines.
Lord Brooke of Alverthorpe (Lab)
My Lords, this is a question that the noble Lord can answer. Will he tell the House, please, how many international flights have migrated from Heathrow to Schiphol, Charles de Gaulle and Düsseldorf in 2010, 2011, 2012 and 2013? If he cannot answer now, will he do so in writing?
Lord Newby
My Lords, I am happy to ask colleagues at the Department for Transport to write to the noble Lord, but I do not think that the matter is as straightforward as that. Individual airlines have a whole raft of decisions to take into consideration when they decide what they are going to do. To say simply that lack of capacity is always the cause of the kind of decision that the noble Lord talks about is to oversimplify the matter. However, I will suggest to my colleagues in the Department for Transport that they drop him a line.
Climate Change
Lord Judd
To ask Her Majesty’s Government what action they are taking to strengthen global co-operation in order to meet the challenges of climate change and to ensure that the United Kingdom is an example of effective support for environmental protection and emission reduction.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, the Government work through multilateral organisations such as the UN, the G20 and the G7, among others, to encourage greater co-operation in tackling climate change, including through the UNFCCC, where we are seeking to agree in 2015 a new international and legally binding rule-based agreement to limit global emissions post-2020. The last UNFCCC Conference of the Parties in Warsaw at the end of 2013 saw all nations agreeing to start or intensify domestic preparations for a global climate change deal in 2015 and to work on a programme and timetable for this progress.
Lord Judd (Lab)
Would the Minister agree with the estimate that to avoid catastrophic consequences global warming must be contained to 2%? Would she also agree that as things stand, the world is on track for 3% to 5%? Is it not therefore absolutely essential that the Government stand firmly by their 50% carbon reduction target and do not in any way back-track? Is it not essential that they use this commitment within the European Union to persuade the Union to move beyond its totally inadequate target of 40%? Would she also agree that at the UN climate summit in September this year, we should use that commitment to galvanise the action necessary for a successful agreement at the world leaders’ summit next year?
Baroness Verma
The noble Lord is of course right that we need to have ambitious but cost-effective targets. We need the European Commission’s 2030 framework to be urgently agreed, which will adopt the 40% that the noble Lord mentioned. However, we have a more ambitious target to work towards—50%—in the context of an ambitious global agreement. That is what the United Kingdom is working hard to get.
Lord Lawson of Blaby (Con)
My Lords, is it not high time that the Government recognise that there is no point in damaging British industry and hurting the poor by setting an example which most of the rest of the world has not the slightest intention of emulating?
Baroness Verma
My Lords, I am always grateful for my noble friend’s interventions. They are helpful because they allow me to raise a couple of serious issues. One of those is that unless all countries globally sign up to reducing carbon emissions, we will leave a bad place for future generations. Therefore, while I disagree with my noble friend’s premise about the intervention, it also challenges us to be able to respond in ways that allow competitiveness to grow while dealing with climate change issues.
Lord Cunningham of Felling (Lab)
My Lords, is it not clear to those who wish to see that if the Government are to reduce emissions and meet their existing targets and obligations, let alone to match even more onerous ones in the future, they have been right to embark on a new programme of civil nuclear power in this country? They should be encouraged to continue that programme. Indeed, whoever forms the next Government in this country should be encouraged to continue that programme. The Government should be congratulated for another important reason: it will reduce our dependence on imported oil and gas and improve energy security in our country.
Baroness Verma
I thank the noble Lord, and I do not think I could have put it much better myself.
Lord Teverson (LD)
Does my noble friend the Minister agree with me that President Obama’s announcement that there will be strong emission controls on major energy plants in the United States was significant? Therefore, in the spirit of the Question, will the UK work closely with America to make sure that there really is a global agreement in 2015?
Baroness Verma
I agree completely with my noble friend, but I am also pleased that China and India have also made sure that in their own domestic plans they are looking at ways and means of reducing carbon emissions.
Baroness Kinnock of Holyhead (Lab)
My Lords, is the Minister aware that developing countries are urgently asking for at least $15 billion in pledges to kick-start the UN Green Climate Fund and that, regrettably, developed countries are reluctant to specify how and when they will increase donations, preferring to wait until the climate fund’s rules and regulations are in place? Will the Minister specify when developed countries are likely to increase their support for the UN Green Climate Fund in order to ensure that the target of $100 billion by 2020 can be met, and that the profound risks and dangers that poor countries face can be averted?
Baroness Verma
The noble Baroness is of course right that we need to talk about climate and finance. We are already scaling up climate finance through our own investment in the International Climate Fund and other programmes. The UK has committed nearly £4.5 billion to international climate finance between 2010 and 2016, of which £3.87 billion is in the International Climate Fund.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for her reference to China. In fact, Premier Li Keqiang is in the UK today. Could the noble Baroness confirm that the Prime Minister will raise the issue of climate change with the Premier, or would he dismiss it perhaps—I paraphrase—as green nonsense?
Baroness Verma
My Lords, I am sure the Prime Minister will have a number of discussions, and I am sure climate change will among them.
Lord Taverne (LD)
My Lords, if there is a chance of reaching international agreement, will the Government do their best to avoid some of the defects of the Kyoto agreement? Britain has reduced its carbon emissions and has increased its carbon consumption, because many of the things we used to make are now imported, having been made abroad with coal.
Baroness Verma
My Lords, the noble Lord raises a number of issues in the round. Whatever each country is doing, it needs to work towards making sure that it is working towards cleaner energy. What we are trying to do in the UK is to encourage not just ourselves to do it but our member state partners.
Convention on the Elimination of All Forms of Discrimination against Women
(10 years, 6 months ago)
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Baroness Hodgson of Abinger
To ask Her Majesty’s Government whether they have nominated any women for the Convention on the Elimination of All Forms of Discrimination against Women Committee to replace those members whose terms of office are due to expire in December.
Baroness Northover (LD)
My Lords, we remain strongly committed to the protection and promotion of women’s rights. We engage closely with the CEDAW committee. The UK has never nominated a candidate to this committee; however we welcome the positive contribution that other members make. We continue to ensure that we put women at the heart of our domestic and international policies, as shown last week when we hosted the Global Summit to End Sexual Violence in Conflict.
Baroness Hodgson of Abinger (Con)
I congratulate the Government on all they are doing to lead on women’s empowerment and gender equality around the world. However, as my noble friend the Minister has said, the UK has never put a name forward to the CEDAW committee. This is such an important and renowned body around the world. Please could my noble friend give me an assurance that in the next round of nominations in 2016, the UK Government will put a name forward?
Baroness Northover
We have no plans to put forward a candidate for the next round of elections in 2016. We look at all UN bodies very carefully and we do not rule out nominating a UK expert in the future, but as the previous Government also concluded, ensuring that such a UK expert is elected is resource intensive. As the noble Baroness knows, we liaise very closely with CEDAW, we put huge efforts into the annual UN Commission on the Status of Women and we put major funding and other support into UN Women, currently standing at £12.5 million a year.
Baroness Thornton (Lab)
My Lords, in the past the Women’s National Commission, which represented millions of women across the UK—and which was abolished by this Government in their first year in office—ensured that UK women’s voices were heard as part of the CEDAW process. Those were independent voices, not always comfortable for the UK Government because they were independent, which spoke about how the UK was progressing in its elimination of discrimination against women. Who represents UK women’s voices in this process, how are they being represented and how are we ensuring that women’s voices are being heard in this process—not just the Government’s voice on their progress on the elimination of discrimination?
Baroness Northover
There has been a huge amount of engagement. My honourable friends Jo Swinson and Jenny Willott, who is currently covering for Jo, have engaged with a number of NGOs. We have provided funding to the Women’s Resource Centre to enable it to launch its shadow report to the committee—that is, of course, an independent voice; we have provided the Equality and Human Rights Commission funding and other funding to enable people to feed into CEDAW and to report back on what CEDAW has said about the United Kingdom Government.
Baroness Hussein-Ece (LD)
My Lords, the Government are to be congratulated on last week’s successful global summit and on working and leading on the elimination of sexual violence against women in war. Listening to my noble friend’s reply, I am disappointed that the Government will not nominate somebody for 2016. However, can the Minister say how the important work of CEDAW will be best promoted within the United Kingdom Parliament?
Baroness Northover
Some of the answers I have just given are relevant here. I point out that we agree with the strategy of the previous Government. The noble Baroness, Lady Kinnock, spoke in answer to my noble friend Lord Lester in 2010, pointing out the resources required to get such an expert in place and the need to prioritise. Meg Munn MP said that sometimes you need to make,
“difficult decisions about which bodies to seek election for”.—[Official Report, Commons, 29/4/08; col. 375W.]
We agree. The important thing here is the promotion of women’s rights, which we are doing at a number of different levels in the way the noble Baroness experienced last week at the summit.
Baroness Lister of Burtersett (Lab)
My Lords, last week’s summit was very successful and very welcome. However, the Foreign Secretary was challenged about what some argue is the hypocrisy in the treatment of women asylum seekers who have suffered sexual violence in this country. The Foreign Secretary said that he would look into it. Can the Minister say what steps are now being taken?
Baroness Northover
There were some very curious comments regarding last week’s summit. The noble Baroness is quite right to make sure that what we do in the United Kingdom as well as what we do internationally is consistent and to the highest standards. From answers I have been briefed on for other issues, I know that the Home Office takes extremely seriously treating sensitively and appropriately those who come to seek asylum who have suffered sexual violence overseas. I am happy to write to her with further details. However, what I found astonishing were some of the comments in the press on last week’s summit, which I thought was groundbreaking.
Lord Howarth of Newport (Lab)
Does the noble Baroness regret that the coalition’s austerity measures have been disproportionately damaging to the employment and incomes of women?
Baroness Northover
There are, in fact, record numbers of women in employment; the figure has now reached 67.9%, the highest point it has ever reached in the United Kingdom. I therefore dispute what the noble Lord says, and point out, for example, that raising the tax threshold disproportionately affected women, because they tended to be in poorer-paying occupations. We are doing our best to ensure that there is equality in the economy, so that women are employed at all levels in the same way as men.
Iraq: Mosul
(10 years, 6 months ago)
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Baroness Cox
To ask Her Majesty’s Government what is their assessment of the situation in the city of Mosul following its capture by Islamic militant members of the Islamic State of Iraq and ash-Sham (ISIS); and of the safety of those who have fled the city.
The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con)
My Lords, the city of Mosul was attacked by the Islamic State of Iraq and the Levant and other armed groups, and is no longer under the control of the Iraqi authorities. Fighting continues between these groups and the Iraqi security forces across parts of northern and western Iraq. Around 500,000 persons are reported displaced. The UK has announced £3 million of assistance to support immediate humanitarian needs.
Baroness Cox (CB)
My Lords, in thanking the Minister for her sympathetic reply, perhaps I might ask for her assessment of reports of the ruthlessness of atrocities, including beheadings and crucifixions perpetrated by ISIS against Christians and Muslims, which have caused the estimated hundreds of thousands of panic-stricken civilians to flee from the cities of Mosul and Tikrit to the rural Nineveh Plain and to the border crossings with Kurdistan, which are already jammed with cars trying to flee. What are Her Majesty’s Government able to do to help to provide protection for those civilians stranded in those places and also to ensure that the humanitarian assistance reaches all those in need?
Baroness Warsi
My Lords, we have had reports of truly horrendous atrocities that are being committed on the ground. Some of them have been verified and some not. Our embassy is working with the Iraqi human rights commission to get a better assessment, but we have all seen the media reports. There is some suggestion that some of those images may be from Syria where, of course, we are aware that ISIL has been operating and has committed similar atrocities. We can all judge how extreme and appalling this group is from the mere fact that in 2013 even al-Qaeda distanced itself from ISIL.
Lord Howell of Guildford (Con)
Does my noble friend agree that whatever the outcome of all this turmoil in terms of changed boundaries and so on, it is absolutely the priority—imperative—to get a united front by all the powers in the region against this butchery and against the killing and bloodshed that is going on, regardless of whether they have Sunni or Shia affiliations? Does she agree that our country is rather well placed because of our skill and experience? We do not want to be involved militarily, but we are well placed to bring about and help this co-operation and halt all the horror.
Baroness Warsi
My noble friend is right; the region has to step up and take responsibility, but ultimately this matter has to be led by the Iraqi Government. One of the first things we have been asking for is for a Government to be formed after the elections that took place at the end of April. It is important that that Government is inclusive. Much of what we see in terms of tensions between communities is because communities within Iraq feel excluded from the decision-making process. Of course, countries in the region have an incredibly important role to play. It is also important to distinguish between the fact that, of course, there is a Sunni-Shia dimension to these disturbances, but not all aspects of the Sunni community support ISIL.
Baroness Symons of Vernham Dean (Lab)
My Lords, President Obama has decided to put American troops on the ground in order to protect American citizens and in particular the American embassy. Can the Minister tell us what steps the Foreign Secretary—or indeed the Prime Minister—is proposing to take in order to protect British citizens in Iraq and indeed our embassy?
Baroness Warsi
This is an incredibly important matter and it is something we keep under review. Our travel advice reflects the reviews as they take place. The noble Baroness will also be aware that whereas we have several hundred embassy staff in Iraq—our main embassy is in Baghdad and of course we have one in the Kurdistan Regional Government area—the US has thousands of staff in Iraq, including, of course, in Basra.
Baroness Nicholson of Winterbourne (LD)
Is the Minister aware that the road between Mosul and Baghdad is fully occupied—fully controlled—by al-Qaeda and ISIS forces? Is she also aware that Abu Ghraib, which is only five kilometres from Baghdad airport, is also occupied by AQ and ISIS, and that all the KRG border is now controlled by the Peshmerga, who are, in some instances, only a few metres away from ISIS and AQ forces? With this situation, how confident is the Minister that the Iraqi Government will be able to reassert and maintain the integrity of the Federal Republic of Iraq without very serious support, not just from the region but from the wider world?
Baroness Warsi
First, I assure my noble friend and the House that Baghdad is under the control of the Iraqi Government. Of course, there are cities in the north and the west that have been occupied by ISIS. I can only give the assurances that the Iraqi Government have given us. Noble Lords will be aware that we receive regular updates from Iraq, and it clearly appears that at the moment ISIS is making advances. But it is for the Iraqi armed forces to fight back, and we will provide the support that is necessary.
Lord Alton of Liverpool (CB)
My Lords, given that minority communities are facing an existential crisis that threatens their very survival, can the Minister tell us what information the Government have about the sources of funding and finance that have allowed ISIS to build up such an amazing military capability, and will she share that information with the House?
Baroness Warsi
I am not sure about any direct funding. I am not sure whether we have that information or whether it is something that I could talk about here at the Dispatch Box. The noble Lord will have seen reports, as will other Members of the House, of the amount of money and gold that was in the vaults of the banks that were subsequently taken over by these extremist groups. That in itself is a worrying aspect of the finance that they now hold.
Lord Bach (Lab)
My Lords, Ban Ki-moon was surely right when he said earlier today:
“There is a real risk of further sectarian violence on a massive scale, within Iraq and beyond its borders”.
Of course, that is an appalling enough prospect, but the humanitarian crisis that will undoubtedly follow will require additional humanitarian support. Can the Minister confirm that any request made to the United Kingdom will be considered and acted on properly?
Baroness Warsi
I can, my Lords. One of the great achievements of this Government is their commitment to international development, which includes humanitarian work. I can confirm that a team from the Department for International Development arrived in the north of Iraq on 12 June to assess the situation, and on 14 June the International Development Secretary announced the £3 million emergency humanitarian assistance to which I referred in my initial Answer. That is something that we will keep under review. My right honourable friend the International Development Secretary updated Cabinet colleagues about that earlier today: it is a matter that she keeps under constant review.
Buckinghamshire County Council (Filming on Highways) Bill [HL]
Transatlantic Trade and Investment Partnership (EUC Report)
(10 years, 6 months ago)
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Lord Tugendhat
That this House takes note of the Report of the European Union Committee on The Transatlantic Trade and Investment Partnership (14th Report, Session 2013-14, HL Paper 179).
Lord Tugendhat (Con)
My Lords, it is customary on these occasions to begin with thanks, and on this occasion I do so in a very warm manner. It is no formality. The committee has been exceptionally well served by its staff and its specialist adviser. I should also like to thank all in Brussels and Washington as well as those in this country who gave evidence, especially those who came from a long way to do so. Last, but above all, I thank my colleagues on the committee for their constructive contributions, their diligent attendance, their support and good company.
Normally, on these occasions, the chairman would talk about the Government’s response to a report but, as this debate is happily being held so soon after publication, the Government have not yet had an opportunity to reply. We shall therefore look forward with heightened anticipation to the Minister’s response to the debate. For my part, I will highlight certain aspects of the report on which I should particularly like to hear from him and which I regard as particularly important. My colleagues on the committee and others who have put down their names to speak will no doubt weigh in on the issues that they consider to be of particular importance.
I begin by reminding the House that today is the first anniversary of the 2013 Lough Erne G8 meeting which, under our Prime Minister’s chairmanship, launched the TTIP negotiations. Mr Cameron described them then as,
“a once-in-a-generation prize”,
that could be,
“the biggest bilateral trade deal in history, a deal that will have a greater impact than all the other trade deals on the table put together”.
Our central finding supports that view, and not just because of the massive figures for the potential economic benefits quoted by the Prime Minister—£100 billion for the EU and £80 billion for the US, figures which we suggest should be treated with a certain amount of caution. There are other reasons as well. One is that TTIP provides the European Union and the United States, while they still account for some 50% of world GDP, with an opportunity to set the template for international trade for a generation to come. In our view, this will encourage China to adopt a more co-operative stance to international trade negotiations, and we think that there is evidence of that already. We also believe that the deal should be structured to enable third parties, including developing economies, to join and to take advantage of the benefits. As I said, this is an opportunity to set the template at a time when the United States and the European Union account for 50% of world GDP. That is not going to last very long and if we lose this opportunity it will not recur.
Another reason why we attach so much importance to a TTIP agreement is that we believe that it could revitalise the transatlantic partnership by adding an economic dimension to the security link that already exists. Then there is the emphasis which is being placed in the negotiations on removing non-tariff barriers and building for the future. Tariff barriers are important, but in transatlantic trade non-tariff barriers are much more so. Their removal could provide a level playing field for manufacturing and service companies on both sides of the Atlantic that would lower costs and open up huge new opportunities for small and medium-sized enterprises as well as for large companies. Large companies know how to get round non-tariff barriers, but for small and medium-sized enterprises non-tariff barriers are often in effect an impregnable wall that is impossible for them to penetrate. Therefore, the emphasis being placed in these negotiations on the removal of NTBs could have very far-reaching effects.
By “building for the future”, I mean establishing a structured dialogue on regulatory matters within which barriers can be progressively removed by agreement over a period of years. This is what is meant in this context by a living agreement, and it is somewhat analogous to the construction of the European single market. I ask noble Lords to imagine a single market, or something analogous to it, that would comprise not just the European Union but the whole north Atlantic area: the United States and also Canada, with which an agreement was reached a short time ago. We believe that TTIP has massive potential of very great significance, both politically, in terms of the European Union and transatlantic relations, and economically, in terms of boosting growth and freeing world trade.
I now turn to some of our recommendations directed at the United Kingdom Government and at others. The first one I shall mention concerns the continued exclusion of financial services regulation from these negotiations by the United States. We say in our report that there is an issue of principle at stake here. In a negotiation between equals it is unacceptable for one party unilaterally to exclude a chapter proposed by another. Of course, there can be hard and difficult negotiations and there is no bounden duty on either side beforehand to reach an agreement. However, for one side at the outset to exclude a chapter of importance to the other is contrary to the spirit in which these negotiations are supposed to be taking place.
That said, and given the weight which the United Kingdom attaches to this issue, the committee does not think that either the United Kingdom Government or the European Commission has as yet made a compelling case for the inclusion of financial services regulation. We look forward to hearing from the Minister today and on other occasions stronger arguments than have been put forward hitherto. I should also like to draw the Minister’s attention to the story in today’s Financial Times on this subject, although I am sure that it has been already. Can he cast any light on that and say whether the FT has it right, as it generally does, or whether, on this occasion, it has it wrong?
My next point relates to agricultural issues, which do not get much coverage in the UK media. Our view is that there will not be an overall agreement unless understandings can be reached on such matters as genetically modified organisms and geographical indicators. These matters are also likely to engage considerable attention in Congress and the European Parliament during the ratification process once an agreement has been reached.
A flagship issue on which the Minister might also be able to report is procurement. This is likely to be a particularly hard fought issue as the European Union hopes to obtain commitments from the various states of the United States as well as from the federal Government. That has been achieved in the Canadian agreement to which I referred earlier—the provinces have signed up. I would be interested to know what price the Minister would give on whether the states of the United States will be as amenable in this matter as the provinces of Canada. As not all European Union member states apply European Union procurement rules as diligently as they should, does the Minister agree with our view that it would be very good for the single market and for this country if TTIP put pressure on them to do so, which would lead to a further development of the single market?
I turn to the industrial and service sectors that stand to gain from an agreement. We were very impressed by the way in which the automotive industry on this side of the Atlantic and in the United States put its case to us. It demonstrated the practical and public benefits that it believes will flow from the agreement and eloquently explained why some of the fears that opponents of the agreement have expressed are unfounded. We came across nothing remotely comparable in any other sector. I urge other sectors of the economy in this country, elsewhere in the European Union and in the United States that hope to gain from a TTIP agreement to look at what the automotive industry is doing and to follow its example.
I conclude with some political points, bearing in mind the fact that the key period for reaching a TTIP agreement, or at least for breaking the back of the negotiations, will be once the European Parliament elections are over, as they are, once the new Commission is installed, after the US mid-terms and before the US presidential election. In that connection, we express concern about the lack of progress in Washington on securing a trade promotion authority. Unless a trade promotion authority is secured, the negotiations are in danger of being kicked into touch before they even start. On this issue, the US Administration certainly talk the talk but have yet to walk the walk. We came across no sense of urgency in Washington on this matter and the impression one gains from a distance is that that sense of urgency is still lacking. I should be grateful if the Minister could cast any light on that.
What is happening on this side of the Atlantic is also somewhat disturbing. In Germany, TTIP has been caught up in the fallout from the Snowden affair. The two obviously bear no relation to each other. Germany would be a big net beneficiary of TTIP but the view has taken hold that resentment over Snowden is a good reason for creating difficulties on TTIP. In France, I understand that there are threats that TTIP will be held hostage to the completely unconnected affair of BNP Paribas’s problems with the financial regulators in the United States. I do not know whether the Minister can cast any light on that.
Meanwhile, in the European Parliament, many of the new populist MEPs are said to be hostile to a deal. Indeed, I read in the media that even the group that includes Conservative Members of the European Parliament will, if the Alternative für Deutschland MEPs join that group, have a majority against the TTIP agreement. I find it barely believable that Conservative MEPs should be in a group that is hostile to an agreement of this sort—an initiative launched by the Prime Minister. I should be grateful if the Minister could tell us something about that.
Against this background, the committee’s recommendations that the Government should put more weight behind their communications and diplomatic efforts in support of TTIP take on additional urgency. Within the United Kingdom, they should formulate a communications strategy around the promotion of TTIP that involves Ministers with sectoral responsibilities, not just Trade Ministers. They should include Treasury, Agriculture and Environment Ministers. All the rest should be involved. In the European Union and the US, it must mean the redoubling of the Government’s efforts to secure the agreement of others. I pay tribute to the efforts that have already been made. I was impressed with the work that our embassy in Washington has been doing, but I had the feeling—I think that my colleagues shared this view—that much of the heavy lifting is being left to the Commission and that the British Government, who have such a stake in the success of these negotiations, could do more.
A successful TTIP would be of great benefit to the United States and Europe as a whole, but to no one more than this country. It is a great international initiative, launched under British auspices and with all-party support in this country. Can the Minister convince us that the Government are putting the weight behind it commensurate with the Prime Minister’s words when he launched the initiative at Lough Erne? I beg to move.
Baroness Quin (Lab)
My Lords, I, too, very much welcome this debate and the fact that it is taking place shortly after the publication of our report, which means that the timing is appropriate. As a member of the sub-committee, I should also like to say how much I enjoyed working on the report with colleagues. There was a constructive and friendly atmosphere in our deliberations, perhaps in no small way due to the calm, wise and always good-humoured chairmanship of the noble Lord, Lord Tugendhat.
It is a good report that deals with a wide-ranging subject. It has a good balance between an overview of the situation and a lot of detail and examples from the various sectors likely to form part of the TTIP. The committee staff certainly deserve thanks for marshalling this huge amount of information and presenting it in a logical and readable way. I hope the report will be read in Parliament and outside, and by those involved in the negotiations.
As the noble Lord, Lord Tugendhat, has said, the significance of this agreement is huge. It has been compared to the achievement of the European single market, and in some ways it has obvious parallels with the work that was done on completing the single market. However, I know concerns have been expressed about it as well, and I should like to comment on these, as well as giving some examples of where I hope and expect the UK will do well out of the agreement.
First, the partnership is still at an early stage. I was quite taken aback to receive an e-mail from a friend in Germany, urging me to vote against TTIP through an online petition. I think that was partly because of the reasons the noble Lord, Lord Tugendhat, has already explained, which are currently part of the political climate in Germany. However, signing a petition at this stage, when one has very little idea of the details of the agreement, does not seem at all a good idea to me. We certainly need to see what comes out of the agreement before deciding whether it is something that is worthy of support.
However, concerns have been raised. My noble friend Lord Rosser, in winding up the debate on the gracious Speech last Wednesday, asked the Government to give assurances that there would be no weakening of employment conditions and the working environment as a result of this agreement. Concerns have also been expressed about environmental and phytosanitary standards. These are important issues to which attention needs to be given. However, I was very glad to see, in the excellent briefing pack prepared by the House of Lords Library for this debate, a publication from the European Commission that is more recent than our report, entitled TTIP Explained. It already has some reassurances on those issues. For example, it says very robustly,
“we need to ensure that our high standards in the areas of the environment, health and safety, protection of privacy as well as workers’ and consumer rights are maintained. Our high levels of protection are not, therefore, negotiable”.
That is an important statement to bear in mind.
Concerns were also expressed in the course of our inquiry about how much democratic oversight of the process there was. Indeed, one of our witnesses felt that the European Parliament in particular had influence over this process only at the very last stage. However, I do not believe that is true. The trade committee of the European Parliament has already issued papers and reports about TTIP, which have been presented to the Parliament as a whole. The European Parliament, like any other, has plenty of opportunities to initiate debates and questions—questions to the Commission and questions to the Council of Ministers—so parliamentarians who are interested in this issue will have many opportunities to raise it in the course of the negotiations. I certainly hope that will be echoed in work being carried out in national parliaments as well. Perhaps the sub-committee has set the ball rolling in this respect, but I am very pleased that there is an all-party group across both Houses that is very active in consideration of issues to do with TTIP.
I should also like to praise Commissioner De Gucht for his openness, both in his dealings with the committee and in his meetings with representatives of various business and consumer organisations and trade unions, which have a natural interest in TTIP. He has been very open with us in particular, and I hope that the new Commission will continue very much in the same spirit.
As to other concerns, one matter of considerable discussion in the committee was the concern about the investor state dispute settlement arrangements and whether these might have a harmful effect on Governments seeking to protect the public nature of the services that they were offering to their citizens. The Commission document is quite robust on this particular issue. It refers to the carve-out that already exists in international trade to enable the European Union to keep monopolies for the provision of public services at all administrative levels, including local councils, and says that similar concerns have been satisfactorily met in the trade agreement being negotiated with Canada. I hope that this is the case. It is certainly an issue that needs watching very closely during the course of the negotiations.
I turn briefly to some of the areas where I think there should be gains. The chairman, the noble Lord, Lord Tugendhat, mentioned the automotive industry, and certainly that industry has a great deal to gain from regulatory alignment and cutting the costs of production through agreement with the United States on a whole range of standards, without safety standards being jeopardised, which is obviously an important consideration. I agree with the chairman’s comments on financial services. This is potentially a very important area for the UK and I am interested to hear from the Minister what progress is being made with talking to the United States on this issue. It would be a great pity if potential gains to a sector where the UK has a lot to give were undermined by a very hostile US attitude.
Agriculture is also an area of interest to me. I hope that these negotiations will allow a resumption of the trade in beef and lamb and in some of the major agricultural products and processed foods in which we have a huge interest as a country. However, this agreement also has the potential to benefit small and medium-sized enterprises in the agricultural sector. One example I remember giving in committee concerned my frustration at not being able to send some excellent Northumberland cheese to friends in the United States. It is true that small speciality food producers find doing this extremely difficult, partly because of the expense of dealing with the FDA in the United States and getting agreement so that they can export their products, and partly because of the bureaucratic costs involved, both to the company wishing to export from here and to the recipients at the other end. It is a very frustrating situation. I can cite many other examples, including cake producers and speciality food producers, from regions up and down the country that have this problem, which I hope will be addressed in the course of these negotiations. Small and medium-sized enterprises, particularly those in rural areas, stand to benefit if we can get mutually agreed standards and cut bureaucracy and expense.
Finally, as important as the agreement itself is the fact that it is the beginning of a process for continued and permanent dialogue on regulatory issues between the two sides. That kind of process is vital, rather than simply relying on occasional trade talks or disruptive negotiations. That, for me, is one of the big potential gains of the TTIP arrangement. I believe that the United Kingdom has a particular role, being both an active member of the European Union and very close to the United States on many issues. Therefore, I wish the Government—and, if I may say so, their replacement Government after the next election—every success in pursuing these negotiations and, we hope, achieving a deal that is good for Britain, good for the European Union, good for the United States and good for world trade.
Lord Lamont of Lerwick (Con)
My Lords, I speak only as a member of the committee and only in order to express solidarity and agreement with the committee’s report. It was a real pleasure to be a member of the committee. My noble friend Lord Tugendhat has thanked our clerk Julia Labeta—who very deservedly has been promoted—our policy analyst Roshani Palamakumbura and our policy adviser Edward Bolton. All of them did a wonderful job in drawing together the huge weight of evidence that we had and helping us to draw the conclusions from it. However, my noble friend Lord Tugendhat deserves special praise for his chairmanship of the committee. He was a very balanced chairman and had a remarkable ability to draw out the different threads of the argument and to guide the committee towards proper and appropriate conclusions.
Like my noble friend, I believe that TTIP has huge potential benefits, to the advantage of both the United States and Europe. However, they are potential benefits; whether they will ever actually be realised is perhaps more of question than has hitherto been admitted. The benefits of an agreement are, of course, mainly about trade but they also extend to investment. Professor Baldwin pointed out in his evidence to our committee that, whereas US-Asian trade is very much just about trade, trade between the United States and Europe is also very intertwined with investment. An increase in trade between the United States and Europe is likely to lead to much more transatlantic investment in both directions as well.
The figures that were produced on the overall benefit of TTIP to the two economies were massive. A number of members of the committee queried the precise figures; they are quite right to be sceptical about the precision of figures of this magnitude as they are produced, but the dramatic impact cannot really be doubted. We also heard enough from our witnesses to banish some of the wilder fears about TTIP. There is no reason to believe that we are going to see social and environmental regulation being gutted, and there will not be reductions in consumer protection or a race to the bottom.
The hope, as my noble friend Lord Tugendhat said, is that TTIP will become a template for the future. In recent years, there have been many more bilateral negotiations, as global negotiations have stalled. This is hardly surprising, as Robert Zoellick made quite clear when the negotiations with WTO ministerial representatives failed at Cancun and he said, “I cannot do business with these people here. I will go and find people with whom I can do business”. That has increasingly led to a lot of different bilateral agreements. It is hoped, as my noble friend Lord Tugendhat said, that this very big bilateral agreement—if you can call one with 28 Governments a bilateral agreement, although it is two organisations negotiating together—might give impetus to restarting the global negotiations.
It also emerged that one of the thoughts in the mind of the United States Government was that concluding a successful trade agreement between Europe and the United States might act as an incentive to bring China back to the table and play a more active role in global talks once again. This was a good thought, although I think that all members of the committee would agree that when we met the representatives of the People’s Republic of China’s trade representation in Brussels, they were aware of but highly resistant to this thinking in the American position.
The point was made very early on and very quickly in our discussions that many of the issues in TTIP will be about non-tariff barriers, because tariffs have come down so much. However, it is important not to forget that there are some areas in which there are still relatively high tariffs, such as automobiles, textiles and clothing, which are very important sectors indeed. Non-tariff barriers are much more difficult to negotiate and, because of that, the issue seems to be not whether regulations as such can be harmonised but whether one can agree a path or process, into the future, by which future regulations, as they evolve, are based on a co-operative dialogue and increasingly harmonised.
The noble Lord, Lord Mandelson, drew a distinction between brownfield harmonisation and greenfield harmonisation for the future. I must say that this seems to be quite difficult and one must not be overoptimistic about it. There is a certain institutional lethargy here. Co-operation between regulators internationally is quite limited because regulators see their role as regulating within the jurisdiction in which they operate. Their responsibilities are often embedded in constitutional and legal structures. Regulators are often reluctant or afraid to trust the judgments of regulators in other countries, leading to a reluctance to have mutual recognition or passporting mechanisms that allow people who are approved in one country to operate in another. Moreover, regulators are often under a legal obligation to demonstrate this or that to national Parliaments. Finally, of course, regulators are often established and have powers for very strong political reasons that are not easily moved.
This was abundantly clear in the financial sector. As my noble friend Lord Tugendhat has said, there was absolute resistance in the US about the financial sector and strong opposition from US agencies, which do not wish to indulge in a form of harmonisation in the future. They were not having it, as one person who gave evidence to the committee put it. The fear in the United States seems to be that too much co-operation and harmonisation could cause Dodd-Frank to unravel. Dodd-Frank is umbrella legislation, so a lot of the detailed work will come later on in what we would call secondary legislation. The Americans are particularly anxious to make that fit for purpose in their country and for their conditions, and not to see it interfered with from abroad. For that reason, as the report says, we were not really very clear on what the Government’s objectives in the financial sector are. One could see certain things to do with insurance and Lloyd’s, but beyond that it was almost as though someone in the Foreign Office or BIS had just said, “What are we good at in the UK? We’re good at financial services, so we’ll have those as one of the objectives of this negotiation”. But boy, it ain’t going to get anywhere, and I would be interested to hear from the Minister how the Government see this.
Another difficult area is that of public procurement. The EU says that it expects no less than a quarter of the gains that might be made by Europe through an agreement to come from the benefits of opening up procurement, but that has to be reciprocal. We have a rather asymmetrical negotiation with 28 sovereign Governments, each with a public procurement programme, against one sovereign Government on the side of the United States. Plainly, the negotiation ought to involve the individual states of the United States as well, but it has been estimated that only 10 of them stand to gain, with just four, I believe, having indicated that they are prepared to participate seriously in negotiations. It was argued by one of our witnesses that transparency might be a middle way. If there was a public duty of transparency, that would force the opening up of procurement markets. However, we heard evidence of a shocking nature from other witnesses that transparency comes well after jobs in the eyes of many US legislators.
Finance and procurement are difficult areas, but automobiles, food and drink are more promising. As I said earlier, there is scope to reduce tariffs, as there is scope for the non-tariff barriers. It was suggested to us by the automobile industry that some manufacturers might move to the low-cost states of the United States in order to export back to Europe. As the noble Baroness, Lady Quin, highlighted, a lot of gains can also be made from the alignment of regulations, even on quite trivial things such as the sort of light you have to have on a car or a heavy goods vehicle indicating when the brake is on. All these little things, when added up together, can produce very considerable savings for manufacturers. An agreement in this area could not just stimulate trade but have a profound effect on the location of investment.
It was unfortunate that we did not hear more about energy in our report. One would have liked to have learnt much more about the possible future of exports of gas from the United States. Of course, what is happening in the energy markets in the United States could itself dwarf the impact of TTIP, because a lot of people will be attracted to trade and investment in the United States because of the lower costs, including the lower cost of energy.
TTIP is a very ambitious concept. It would be nice to say that it is an idea whose time has come. I hope it has. One day it certainly will happen but the difficulty is in making it happen in the near future. The important thing going forward is to advance the points that are most practical—to grab the low-hanging fruit—and then try to establish a path for future regulatory co-operation. As the noble Lord, Lord Mandelson, said, most trade negotiations are a snapshot and the trick is to turn the snapshot into a movie for the future.
Lord Liddle (Lab)
My Lords, I do not have much to add to the excellence of the report by the noble Lord, Lord Tugendhat, and his committee. It is a truly comprehensive report. I put my name down to speak in this debate because, as a strong supporter of open trade—as a believer that it is a driver of economic growth and of great help to poor people through lowering prices—I am very concerned, on the basis of my own contacts and workings on the continent, about the political mood towards TTIP in the European Union at the moment, and I think that a major political effort will be required if this objective is to be secured. At the end of the debate I would like to hear from the noble Lord, Lord Livingston, whether he shares this concern about the progress of the negotiations and the rising political opposition to TTIP, and what the Government propose to do about it.
Of course, trade negotiations are always difficult, as I learnt in the time I spent in my noble friend Lord Mandelson’s cabinet when he was Trade Commissioner in Brussels. The United States is an extremely difficult partner to deal with. Its political system is, if anything, even more dysfunctional than that of the European Union. Therefore, it is extremely difficult for an American Administration to get their ducks in a row to do a major trade agreement.
There is no certainty at the moment about when trade promotion authority, which is essential to this, is going to be secured—possibly at the end of this year, possibly early in the life of the next Congress. There is great uncertainty about that. There is a lot of opposition to trade agreements within the Democratic Party as well as on the part of the Tea Party on the right. The noble Lord, Lord Lamont, is right that the way in which the regulatory institutions in the United States operate is that a lot of them are independent, as it were, of the Administration and it is quite difficult to get them to agree to make progress.
We have the great advantage, which I think the Government have not properly recognised, of having a European Commission that has been pro-free trade and is a key driver on the European side, but in my opinion there is no natural majority on the Council for ambitious trade agreements. We have allies among the northern Liberals but we always have to carry Germany, and if we are going to get an agreement through we always have to carry Italy as well; the Italian vote in the Council is crucial on these questions.
I am concerned about the general political mood after the European elections, which the noble Lord, Lord Tugendhat, referred to: the feeling that what has gone wrong, the reason for the rise of populism on the left and the right in Europe, is not that Europe has not economically reformed enough in the direction in which many in Britain want it to: rather, that there has been too much liberalisation and globalisation and that the EU has partly contributed to that. That is a large part of the motive behind the support for populism and the rise of protectionism.
There are also specific reasons, which the noble Lord referred to, such as the Snowden and BNP Paribas affairs, but the last time that I was in Brussels attending debates on this subject I was amazed by the strength of feeling among NGOs on the question of whether environmental and food safety standards would be threatened by this agreement or—the point my noble friend Lady Quin referred to—on the question of the investor-state dispute mechanism and whether it could be used as a lever to, as it were, privatise our sacred public services in Britain, including the NHS.
What alarmed me most was to be told that the German and Austrian trade unions, which in European affairs I normally look on as pillars of common sense on matters European, both economic and political, are having serious doubts about the TTIP agreement. The worry that one has politically is that there are already populists in the Parliament, but if at the same time the trade unions, the Greens and the social democratic left are mobilising against this agreement, we will find that we do not have a majority for it in the Parliament.
That would be a great pity, because the economic gains as set out—although, like anyone else, I do not believe the precise numbers that are put on these things—are potentially huge. It would also be a pity geopolitically, as the agreement would revive trans- atlanticism. At a key point in history, when there is a real risk of America turning to Asia, this would be an opportunity to revive the transatlantic relationship. It could build something that might have great long-term potential if we can, as it were, establish a trade agreement that contains within it mechanisms for agreeing on regulation for the future. That would be a tremendous step forward in America and Europe’s ability to set global standards in a world where economic power is shifting against us. It would be very important for us and crucial for our ability in future to defend our interests and values in trade.
Also, the Government have said that TTIP is very important for their own objectives of achieving reform in the EU and, if they are re-elected, for building a case for support for the EU in a referendum. Do the Government share these concerns? What are they going to do about them? How are they going to address them? We have to try to reassure on some of the points that have been made on environmental standards and food safety standards. We have to find the means of providing reassurance. We have to provide the means of finding the assurance that we are not signing away special legal privileges to corporations that allow them to override national policies and insist on their entitlements to win contracts where we want to protect our public services. We have to find some way of providing those assurances.
If you are going to win support for trade agreements that involve very big economic adjustments—and there will be big adjustments in agriculture and textiles, and possibly in automobiles, as a result of this agreement—you have to have some social mechanisms in place to compensate for those difficult adjustments.
We face a potentially serious situation. It is of great concern, and I hope the Minister will be able to assure us that the Government are fully on top of this, are determined to find allies, and have a political strategy for ensuring that this important agreement goes through.
The Earl of Sandwich (CB)
My Lords, this has been a fascinating learning exercise for me, and I think for other people involved. The chairman has given us an upbeat introduction; I hope and think that he is not being overoptimistic, but that is his characteristic. It has been a privilege to work with him, not only because of his extensive knowledge of the EU and the United States but because he has been such good company, and it was a pleasure to travel with him and some of the committee to Brussels.
I was brought up in a non-government environment in which fortress Europe was a concept to be resisted because it was always going to be built at the expense of the rest of the world, notably the poorest developing countries. The notorious CAP we all remember, in the time of the butter mountains, was also the enemy because it would ultimately work against protectionist philosophy and destroy markets enjoyed by the old Commonwealth countries.
Time has moved on and the CAP has been slowly adapted to the needs of the environment. I have to admit that I am a very minor beneficiary of the CAP through the countryside stewardship scheme. The Cotonou agreement has made life a little easier for the African, Caribbean and Pacific countries in the transition to freer trade arrangements, which have to come. The new treaty will also bring many benefits in the long run to third countries, as our chairman has said, and as our report tries to demonstrate, although it is a difficult argument to make at this time.
The wild card is, of course, China, whose premier, Li Keqiang, is in London this week. We in the UK have a lot of ground to make up if we are going to attract more trade with China while retaining our proud position on issues such as Tibet, human rights and student visas. It seems very likely, as the noble Lord, Lord Tugendhat, has said, that TTIP will help us in this situation in the long run. My strongest memory in Brussels is of the Chinese envoy to the EU, Mr. Zhang Kening, stoically pretending across the table that TTIP might help the US and the EU, but that it would not be a suitable template for a multilateral treaty. This was not what we wanted to hear, but, as we state on page 23 of the report, the Chinese warned us quite solemnly that there were varying degrees of economic development around the world among WTO members, and each member would have to see whether the idea was “a good one or a bad one”. I felt during our inquiry that this is a critical issue in the negotiations: whether the treaty, whatever its advantages for the two parties, can also become a catalyst to international trade as a whole and provide a new impetus to the moribund Doha round, as the noble Lord, Lord Lamont, mentioned and I think the Government believe.
We all know that the US and some EU member states have their eye firmly fixed on China and the potential prosperity that we will enjoy and how it will react to TTIP, given its immense present and future influence in world markets. Our former Minister, the noble Lord, Lord Green, expressed the hope that China would become increasingly involved and that following the Bali agreement the UK should keep up the momentum in our own global interest. Equally, we must take seriously China’s message to us that it stands with developing countries when it comes to making concessions in the Doha round.
There is a school of thought, mentioned by the noble Lord, Lord Liddle, I think, that TTIP could be an economic version of NATO, softening the Atlantic relationship into one which will gradually lubricate the crevices of political alliances and opposing nation states. The disadvantages of this happy metaphor are obvious: that the EU and the US are still mainly concerned with themselves and their western concepts of freedom and democracy when in fact they ought to be opening out still further to a much wider world of partnerships and trade links.
That, in broad terms, is the position of the unions and the trade justice campaign, which see fair trade disappearing into a sea of mercantilism and the long-fought rights of workers dissolving in the erosion of core labour standards. They are also apprehensive of the investment and procurement provisions of TTIP which they say could, under this treaty, enable US companies to buy into much cherished institutions at home, such as the NHS.
I am sorry that we did not give a little more space in the report to the impact on third countries because the evidence was inconclusive. The TUC and others said that tariff changes in TTIP could have a negative effect on countries, such as Bangladesh, selling footwear and textiles and could devalue existing agreements. On the other hand, the noble Lord, Lord Mandelson, told us that most developing countries were not competing with the EU at the top end of the value chain.
Professor Baldwin indicated that the EU could provide development assistance which would compensate the losers, as it had in the past with free trade agreements. Perhaps the Government will comment on that. Another benefit was seen in the form of harmonised regulation: if TTIP succeeded in its aims, and the principle of mutual recognition was non-discriminatory, the rest of the world would be dealing with one set of regulations instead of two.
We cannot expect everything from this treaty. I agree with our chairman and the noble Baroness, Lady Quin, about the virtues of a living agreement. That is surely going to come and is something that I think the trade commissioner was advocating privately.
The usual channels have been generous in giving us time for this debate. We were concerned that TTIP was still an obscure subject. I have never seen the Chamber empty faster than today when our poor chairman rose to speak. It was certainly not a comment on him but shows the awareness of the subject. This is partly because the negotiations are still not transparent. Our report could help to spread the word, although it will hardly be at a popular level. We asked for a communications strategy and the new Minister, who is here, the noble Lord, Lord Livingston, appeared to agree—I hope he will confirm that—and told us that increasing public awareness of the treaty was a priority for Her Majesty’s Government. Perhaps he will comment on the relationship between that and the negotiations. Surely this is much more important in the public mind than the musical chairs going on in Strasbourg and Brussels.
Finally I thank Julia and Roshani and our specialist adviser, Dr Dennis Novy, among others, for their remarkable grasp of this quite complex subject and for making it intelligible to me and the army of readers who we hope will be scrutinising this report.
Lord Giddens (Lab)
My Lords, like my noble friend Lord Liddle, I speak not as a member of the committee that produced this report but as an interested and motivated outsider. I commend the noble Lord, Lord Tugendhat, on his excellent introduction, and also congratulate the committee on its report, which is detailed and thorough and brings some fresh insights to the issues. That is not an easy task because the European Commission has already produced a large amount of documentation on TTIP, its prospects and problems. I should know, because I have waded through most of it.
Probably the most famous thing that has ever been said about TTIP is the observation that it should be achieved on “one tank of gas”—a now celebrated statement but something that, as other noble Lords have quite plainly shown, is not destined to come about. The reasons were given by my noble friend Lord Liddle and others: this is a far-reaching enterprise, and we have to be in it for the long haul. A range of problems and issues, including those mentioned by my noble friend, have been identified by other noble Lords, too.
There can be no doubt, however, about the potential benefits of a developed version of TTIP if it could be realised. The facts and figures that are bandied about are, as has been said by other noble Lords, estimates at best, although this is another area where the Commission has done a good deal of valuable and detailed work. Yet we all know that the potential positive effect on the EU and US economies is huge. We all know it is not a zero-sum game and that it will transfer to other countries in the world. I strongly support what the report says and other speakers have said about involving third countries in the enterprise. As the report quite properly points out, such an agreement could be a vanguard model for trade agreements elsewhere.
Just as important, as other noble Lords have already observed—I think noble Lords have said most, but not quite all, of the things I am going to say—it could breathe new life into the transatlantic relationship. Therefore this goes well beyond the purely economic level. We all know what is happening on the edge of Europe, in Ukraine. We can all see that we need, in some sense, to re-establish the West, and this could be a mechanism that will help us to do so.
For these reasons, it is worth keeping option C.2 in the Commission’s recent assessment report at the forefront. It is the most ambitious in the range of options analysed therein, but it provides an overall framework. We should certainly try for the low-hanging fruit but, at the same time, sustain an overall framework which supplies an overall approach. The Commission emphasises—and the report says this, too—that such an agreement would have to be of a “living” nature. Regulatory issues that could not be resolved early on should form part of a continuous dialogue that would evolve and deepen over time.
Other noble Lords raised issues of environmentalism and environmental protection. This is the nub of many of the objections that my noble friend Lord Liddle mentioned, some of them coming from Germany. I am an environmentalist. I have written extensively on climate change, but I am strongly positive towards TTIP precisely because it centres on regulatory issues. It enforces a dialogue that can be of value in Europe and the United States. I will give an example—an illustration—of the precautionary principle. This principle is very important in some contexts in Europe and is enshrined in European documentation, but it is a questionable idea. To me, the precautionary principle simply vocalises, when put in this way, one simple everyday saying: “Look before you leap”. Yet there is always an opposite to every saying, which in this case is: “He who hesitates is lost”.
What we need in Europe is a discussion of the scientific balance of risk and opportunity—and for me the balance always has to be assessed in a specific context. That is the reason why the kind of dialogue that is partly enforced by the progress of TTIP, if it is seen and brought to public attention in the right way, could be enormously fruitful rather than a barrier.
I will briefly follow up what noble Lords have said and ask the Minister three sets of questions to which he might consider responding. As other noble Lords have said, there has been a lot of discussion across Europe—again, some of it pretty hostile—about the investor-state dispute settlement mechanism. The problems, to my mind, are very well analysed in the report. Will the Government be reconsidering their position on this issue? If so, in what way? Does the Minister agree that this question especially needs to be given a full and open public hearing? If you look at it in some detail, it exemplifies just the issues that I was talking about. It is not, I think, purely a negative set of arrangements once it is unpicked, but it needs to be unpicked.
Secondly—other noble Lords have asked this—what is the Government’s view of the state of play on the key question of the inclusion of financial services in a trade deal? Can the Minister comment on newspaper reports that a “draft offer”, as it is has been put, of the EU’s proposals to the US has already been decided on that will omit reference to financial services? Is there any evidence that this is the case—because, as other noble Lords have quite properly remarked, the issues here are obviously huge? We all know about what the European view describes as American intransigence. I think it is more complex and interesting than that, although I recognise all the problems on Capitol Hill and the devolved nature of the United States that is crucial to all of this.
Thirdly, and finally, what further efforts should be made both in the UK and across the rest of Europe to bring TTIP to public attention? It was quite appropriate that the Chamber just emptied when the issue was mentioned. This is a gigantic scheme, after all. This is world historical. It is a very odd conjunction. This is one area where the Lords report is especially good. What it says, as everyone here who was on the committee will know, is that,
“insofar as a public debate on TTIP exists, EU member states are losing it”.
One of the main impulses, as has been said, of some of the populist parties in Europe is precisely a return to protectionism. A proper and detailed discussion in public of the benefits of TTIP could surely contribute positively to countering these isolationist tendencies and the resentments that fuel them—but how would such a debate get off the ground? How would it be organised, what role should the Government play and what role should civil society groups play? It would clearly have to go well beyond the purview of Governments themselves.
Lord Trimble (Con)
My Lords, I join other members of the committee in thanking the staff attached to the committee for the help that they gave us in producing this report. I would also like to express my appreciation of the chairmanship of the noble Lord, Lord Tugendhat, who handled these very complex issues in a skilful manner, as noble Lords will have seen demonstrated by his comprehensive introduction to this report this afternoon. That enables me to cherry pick, as I want to go to one particular bit of evidence that we received which I find absolutely fascinating.
This may not be news to other members of the House or the committee, but it was considerable news to me. I refer to the evidence of Professor Richard Baldwin, the director of the Centre for Economic Policy Research, who described to us the main factor behind what he called the sea change that has taken place in international trade over the past two decades. I will paraphrase what he said in explaining that sea change. Professor Baldwin said:
“Around 1990 the ICT revolution changed the nature of trade in the sense that it allowed stages of production that were done within a factory to be dispersed overseas”.
In a sense, that was nothing unusual: it had been happening between the rich countries—between the US and Canada, and with western Europe and the Common Market and so on. However, apparently, what changed since the 1990s was that that could happen along a north-south axis, between the US and Mexico, Germany and Turkey, Japan and Thailand. He said:
“It was a global change, driven by the ability to co-ordinate complex activities overseas”.
What was happening was that there was,
“not just goods moving between production bases. It was that ideas, knowhow, training, capital and people were moving inside rich company factories”.
At a later stage—on page 28 of the evidence document—the professor said that,
“the know-how is staying inside firms but crossing borders”.
and that possibly the best way to think about that is that,
“the notion of national competitiveness or comparative advantage … has been denationalised”.
That is a fascinating aspect of globalisation, which I am sure in general would be a good thing.
However, as Professor Baldwin says, that development requires particular forms of discipline. The firms are connecting across borders, so things such as infrastructure services, telecommunications, capital flows, investment insurance and intellectual property right assurances are transferring and that itself needs particular assurances to be built in so that companies can proceed to do that.
Apparently, once that started, the nature of some trading agreements changed. Those had developed through a series of bilaterals between Japan and its factory economies and between the US and its factory economies. The nature of this,
“makes it sensible to knit together some of these agreements”.
That is basically what is happening in the large agreements we are seeing, starting first with the Trans-Pacific Partnership—TPP—which started to knit those things together. TPP is, in effect, knitting them together under a US template, and the European Commission realised that in these circumstances there needed to be a European template on the table as well. That is the reason for the sudden emergence of TTIP, so that is the background to what is going on.
The second major point that the professor made, which was touched on by other noble Lords, is that a lot of what is happening here aims for regulatory convergence or harmonisation. That process has started and is going on. However, as was pointed out by the noble Lord, Lord Lamont, there is considerable bureaucratic resistance to that convergence and harmonisation, as national regulators are reluctant to see powers move from them to other ways of doing things. As the professor said,
“That is the best that TTIP will do: start a process in which, first, the regulations stop diverging and the existing ones start to move, or we get mutual recognition. That is a process, and the best we can hope with TPP is to set in place a framework for … going forward”.
The big thing is,
“starting a process, so I do not think it will be done at the end of this year or anything”.
He said that in a sense one should not be concerned about not meeting those targets; the important thing is that people are discussing issues and making progress in a dialogue, and,
“a lot of this stuff can be done without signing a free trade agreement”.
I can perhaps see how those comments chimed in with some of the evidence we got from the City, particularly from TheCityUK. Noble Lords will find that on page 37 of our report, which deals with the existing provisions for a dialogue on regulatory matters between Europe and the United States. That existing dialogue is criticised, and those criticisms are set out in the report at that stage. TheCityUK said to us that it was well aware of the reluctance of the Americans to put financial services on the table and the way in which they wanted to ensure that the Dodd-Frank Act was not in any way reopened. I hope I am accurately repeating what TheCityUK said to us—they had no great expectation of there being any significant move in terms of enabling financial services to be more liberalised. However, what they want is an effective and continuing negotiation or conversation between Europe and the United States. This might be the most important thing that comes out of this.
Reference has been made to having a living agreement. Reference has also been made to the evidence we received from the noble Lord, Lord Mandelson, who used quite a few interesting metaphors. We have had the noble Lord, Lord Lamont, talk about his phrase about great trade agreements being a snapshot and what we really wanted was not just a snapshot—a picture taken at a moment in time—but a movie that is going on over a longer period of time. I have no great difficulty with the noble Lord’s reference to brownfield and greenfield. When he was referring to the difficulty of getting regulatory convergence in some areas where there were existing regulators, he likened that to a brownfield site, which is much more difficult to work with. It is much easier to work with greenfield sites—sites where there are no existing regulatory arrangements. The noble Lord, Lord Mandelson, at one point referred to moving into virgin areas where a more comprehensive set of proposals could be made. I am sure that will be necessary. I suspect, too, that the process that Professor Baldwin described about the way in which competitive advantage has been denationalised, in which firms are transferring know-how across borders into third-world or developing countries is a good thing and one which needs to be encouraged.
If we can get TTIP with all the bells and whistles, good; if we cannot, it is important we should not give up and say “Oh dear, opportunity lost”. We should ensure there is an effective dialogue put in place which can then be built on over time.
Baroness Henig (Lab)
My Lords, as a member of the EU sub-committee that undertook the inquiry, I draw your Lordships’ attention to my declaration of interest in the report.
I start by thanking the noble Lord, Lord Tugendhat, as others have done, for his expert chairing of the inquiry and particularly for ensuring, with his customary good humour, that we focused our minds on the central and strategic issues that we needed to discuss. Given the complexities involved that we have already heard about and given the wide range of issues that we could potentially have covered, that was no mean feat. The report bears all hallmarks of his erudition, long experience and great expertise; we all benefited from that. That is what I should like to put on record. I also extend my personal thanks to our special adviser, the committee clerk and the policy analyst, whose help and guidance I greatly appreciated.
We in this Chamber are all well versed in international trade and investment issues. I am sure that is true, looking around. Where do we start to explain to non-experts and to the person in the street and on the doorstep what TTIP is all about, what it might deliver and why it is potentially so important? A good place to start might be with a very current analogy with which some of your Lordships may be familiar: the World Cup. In Brazil at the moment, there are 32 teams drawn from across the world, very different in style and approach but all playing to the same rules on identically laid-out pitches. Noble Lords might ask what that has to do with TTIP. Of course, in the field of international trade and investment, countries and trading blocs have their own individual rules and regulations. The United States has in place a structure within which business and commerce operate, and so does the EU. Unfortunately, the structures are not the same and that causes difficulties, but the important point is that the rules and regulations that are in place have been derived over decades from political debate and from public participation.
As between the United States and the EU, there are many similarities in both approach and ethos. Therefore, the importance of TTIP, as the noble Lord, Lord Tugendhat, and my noble friend Lord Giddens, have both emphasised, is that it is an ambitious but timely attempt to forge as many common sets of rules and regulations as possible between the US and the EU, which together account for nearly half the world’s GDP. It is important that we do not lose sight of that overall vision in the detailed, myriad discussions about individual issues and categories of product—or, indeed, in the labyrinthine issues about investor-state dispute mechanisms, about which I listened at great length, although I am not absolutely certain even at this moment whether I fully understand them.
As our report points out, TTIP,
“has both a strategic dimension, and a geopolitical one … One of its most important legacies may be the establishment of a structured dialogue on regulatory matters between the EU and US sustained into the future”.
It is important that we point out that that agreement would not be at the expense of the rest of the world. Experts from the Centre for Economic Policy Research predict that it would have a positive impact on worldwide trade and incomes, and that it would be pivotal to the progress of other multilateral initiatives, including the Doha round.
We have already heard from the noble Lord, Lord Liddle, that by no means all political groups in the EU support this vision. We know, for example, that the Green parties are campaigning strongly for policies of self-sufficiency and that UKIP wants the UK to go it alone and unilaterally draw up its own rules and regulations. We have also heard from the noble Lord, Lord Tugendhat, that, curiously, Conservative MEPs have joined the Conservatives and Reformists Group, which looks as though it will strongly oppose the TTIP agreement. Therefore, we have the most curious spectacle of Conservative MEPs in Europe opposing their own Government’s policies on TTIP. That really is bizarre. I do not suppose that the Minister wants to say too much about it, but I feel that I have to point it out.
Further afield, China is watching all this very carefully. We know that it plays to its own government and Communist Party rules, and we know that it does not have too many public debates about trade agreements. We know, too, that it does not tolerate pressure groups, such as Friends of the Earth. None the less, assuredly, China will fall in with whatever trade structures are most advantageous to its worldwide economic interests. Therefore, even if TTIP does not achieve all its objectives, it will, as speakers have already emphasised, give the opportunity for the EU and the United States to lay down a template for future trade and investment agreements, and other big powers, such as China and India, will have to take note of that. That is one of its big, important points.
Our report makes clear the ambitious scale and complexity and the difficulties involved in these negotiations. However, we have not heard too much—and we ought to raise this—about substantial progress. I think that there has already been a lot of substantial progress, which we should be celebrating and highlighting. For example, on the EU side, there is a lot of common ground among members and agreement on a great majority of issues. There is a clear view of what the EU wants from America. For me, what is really significant about all this is that Britain is playing a pivotal role in the negotiations, because of its strong links with the United States and its membership of the EU. Our report again points that out.
Everything that we read or hear about Britain’s role in Europe at present is depressingly negative, yet here we have the British Government playing a really important central role in a set of groundbreaking trade and investment negotiations, which could have a major impact for the rest of this century. We also see Britain working with EU partners, forging strong relationships with France and Germany and shaping the negotiations with the United States. Should we not be hearing more about this? Is it not the answer to UKIP, to Conservative MEPs and to the Brexit advocates who want to pull us out of Europe as quickly as possible?
Would we really want to be Norway, Switzerland or Turkey at this point, watching anxiously as the negotiations proceed, wondering how they will impinge on our own interests, working out how we can tap into any benefits that might result and not get left behind? Of course we would not—it would be like being relegated from the Premier League. Who wants to relegate themselves voluntarily from the Premier League when TTIP offers so much for the development of trade and industry in the coming decades, for jobs and new opportunities, and when we in Britain are playing such a central role in helping to shape it? I really think that we should be hearing more about this, so I ask the Minister, as I asked him when he came before the committee: how are we spreading the word? What is the Government’s communications strategy for this good news story? Who is spreading the word about what is at stake, the role Britain is playing and how small businesses and consumers are likely to benefit if a deal is concluded? I should like to hear, as other speakers have already raised, what is planned in this area. What are the CBI, the Institute of Directors and other business and trade bodies doing to spread the word? This is not just a government issue; a number of organisations should be sharing the load of explaining what is going on and what is likely to result.
We are looking at the prospect of international trade being made easier by the adoption of common rules, the lowering of trade barriers, the cutting of bureaucracy and regulations and the liberalisation of trade in services and public procurement. All that is not just good news for established businesses or for global corporations; I agree with the noble Lord, Lord Tugendhat, when he said that it is also good news for ordinary people. For example, there are those who buy and sell on the internet—what we might call the eBay economy—which is spreading very fast in this country. It really matters, yet, as the noble Earl, Lord Sandwich, said, if you stopped 100 people walking down Millbank this afternoon and asked them about TTIP, almost none—probably absolutely none—would know anything about it. That is a major problem and we need to change it.
What are the prospects for success? We know that there are political constraints on both sides. In the United States, there will not be much progress this side of the November mid-term elections, and that probably gives a window of about a year before American attention switches to the forthcoming presidential elections. In Europe, a new Commission will have to settle in, so it seems that 2015 will be the critical year for making progress. Again, of course, there will be constraints that hold things up. In Europe it will be having to clear every decision through the Commission; in the United States it will be what can be agreed by Congress and what has to be reserved for the individual states, which, we can be sure, will jealously guard their own power and interests. So progress is likely to be slow and patchy.
We have already heard that the United States wants to exclude financial services from any deal. We know about European sensitivities over genetically modified food and the protection of countries’ cultural heritage. Yet it is possible that negotiations will be more successful than we fear, and that momentum will gather pace. Assuredly, there will not be agreement on everything, but to return to my first point, if it proves possible to lay down common rules in a number of areas and if procedures are agreed for future negotiations, that will be a big win. It will in turn help to lay the basis for future trade and investment agreements, not just between the EU and the United States but across the globe. It is because of that vision and that prospect that we need to do everything we possibly can to ensure that these negotiations are successful.
Lord Radice (Lab)
I congratulate the noble Baroness, Lady Henig, on an excellent speech. I, too, speak as a member of the sub-committee, but also as a very humble student of a very complex subject. It is wrong to say that everybody in this room knows all about trade. I do not believe that to be true. In fact, if one did a poll of the House of Lords and asked what TTIP was, I think we would find that almost nobody would have any idea at all what it is. I have been asking my friends, most of whom are reasonably intelligent, and they do not know what it is. That is an issue and one which we raised, I think rightly, in our report, and I want to return to it, but I begin by thanking our exceptionally able clerk, Julia Labeta, who has gone on, not necessarily to better things but to other things; our very expert specialist adviser, Dennis Novy; and our indefatigable policy analyst, Roshani. I will not say her surname in case I get it wrong and she feels offended, so I will call her just Roshani. Like everybody else who has spoken, I pay tribute to the wise, extremely skilful and experienced guidance given by our chairman, the noble Lord, Lord Tugendhat, who was an EU Commissioner for many years. He helped produce a comprehensive and clear report on this very difficult subject.
One thing that probably would be widely accepted in the House of Lords, and indeed in the other place, is that trade is crucial not only to production, growth and jobs but to prices and consumer choice. Therefore, what happens to trade is important. Part of the background to the TTIP idea is the failure over many years of the Doha round’s multilateral approach. It has not succeeded. We have also had the world recession, out of which we have only recently emerged. It is in this context that a deal between the United States and the EU, which between them account for nearly half the world’s GDP, as we point out in our report, could provide a substantial stimulus to world trade and growth over a number of years. We mentioned the figure of £100 billion. We should be careful about figures, but we point out that the gains for such a deal could be substantial. We mentioned £100 billion a year for the EU, £80 billion a year for the United States and £10 billion a year for the United Kingdom. I do not know whether those figures are right as it seems to me that we have made some fairly heroic assumptions, but clearly we are talking about a very big agreement indeed.
As the chairman pointed out, the focus of this agreement is new. It is not centred on getting rid of tariffs, although that could be very helpful given the massive trade flows across the Atlantic, but tries to reduce non-tariff barriers and promote regulatory co-operation. That has never been done before, certainly not on this scale. Therefore, we are talking about something very big and very difficult. It is no wonder that the idea of a living agreement has emerged, because we are not going to get an agreement straightaway. Therefore, we need to have a procedure that will ensure that we go on talking—that is what a living agreement amounts to in my view—and that is very sensible and realistic.
Our report also makes the important point that a deal on such a scale could set standards for the future in trade and investment agreements and could therefore be important for our relationships with emerging superpowers such as China and India. It is worth repeating what the chairman said in that regard. In that sense, TTIP has a strategic dimension, especially if there is also provision for allowing, and indeed encouraging, third parties to participate, as we suggest in our report. The noble Lord, Lord Mandelson, said that TTIP should not be,
“a closed shop for Europe and America to serve and suit each other but an open architecture that others can join and emulate”.
That seems to me a rather good description of what the Government, the European Union and America should be trying to do.
The UK Government are to be congratulated on their involvement in this matter. They rightly attach importance to TTIP. It is no coincidence that it was launched a year ago, as the chairman said. As our report emphasises, the UK stands to benefit considerably from a successful deal. We discussed some of the priorities, which I shall not go into at this stage because other Members have mentioned them.
I will, however, say this about the financial sector: as we found out on a frozen trip—I am talking about the climate—to Washington in February, there is no enthusiasm in the US Treasury for involving the financial sector in any kind of deal. We will have to live with that; it may well be that we have taken a realistic position but we will, no doubt, hear from the Minister about that. There is, however, a case for involving the financial sector, and the chairman was right to say in principle that it is a pity that one major partner just says that it is not an issue worth discussing, when it clearly is.
I repeat: the fact that we are in the EU is important for us. It makes us far more influential as a member of that bloc representing 28 member states and 500 million people than if we as a single country were trying to influence the United States. Let us say that loud and clear. It is something that the Government should say. It is very important indeed, when embarking on such an enormous venture, to point out that we are able to be involved only because we are a member of the EU.
I want to say a final word about the negotiations. They were launched with tremendous fanfare, but as everyone has been saying there is no certainty of success. The noble Lord, Lord Lamont, in an excellent, wise and skilled speech, pointed out just how complex all this is. The first round of talks was in June 2013 and they have continued every few weeks; there is a further meeting in July. We had excellent negotiators on both sides—Karel De Gucht for the EU and Michael Froman for the United States. Both are brilliant men, but technocrats, however brilliant, cannot carry the weight of negotiations entirely by themselves, which is what we are asking them to do at the moment. TTIP also needs the energetic support of individual Governments and individual Ministers at the very top level, as well as at the level from which we will hear this evening. That is true not just in the United Kingdom but elsewhere.
TTIP will also need the backing not just of the big corporations—we have been speaking to the automotive industry representatives, and there is no question that they back it strongly—but of trade unions and civil society. I was pleased that Karel De Gucht seeks to reassure Europeans that high levels of environmental safety and the safeguarding of workers’ and individual rights are not on the table for negotiation. A lot of disinformation is going on, but those issues are not on the table for negotiation.
As I said at the beginning, there has been little public interest in TTIP at all, but in so far as there is a public debate, member states are losing it. I quote from our summary, which is absolutely right:
“Proponents have yet to articulate the purpose or possible gains from TTIP in a compelling way”—
the name itself is a turn-off—
“or offer convincing responses to legitimate concerns”.
One example of legitimate concerns may well be the investor-state dispute settlement, or ISDS, on which De Gucht is holding a public consultation. That is a difficult issue on which we ought to try to reassure those who are arguing strongly against it.
As the chairman pointed out, from our investigations we have drawn the conclusion that there could well be a window of opportunity to make significant headway in negotiations after the installation of the EU Commission and the mid-term elections in the United States but before campaigning for the presidency begins. This could be the moment when politicians on both sides of the Atlantic seek to mount a concerted effort to face up to the outstanding issues, and to mount a campaign to make the public aware of potential benefits. We are right to take a slightly warning tone in parts of our report that without such political impetus the opportunity to make substantial progress might be stalled or even lost. If TTIP negotiations are to be successful, the watchwords must be carpe diem, which roughly translated for the non-Latinists means that we have to seize the day.
Lord Jopling (Con)
My Lords, this report has been extremely well received all round. I hope very much, when the Minister comes to reply on behalf of the Government, that he will be able to tell us that the Government have received it as warmly as it seems to have been received everywhere else. Extremely warm tributes have been paid both to our staff and in particular to our chairman. I want to endorse that as strongly as I possibly can. We have been extremely fortunate, both in the staff, but especially in the chairman’s experience as a Commissioner in Brussels, which has been absolutely invaluable.
I am in no doubt that there are major economic and trade gains to be achieved as a result of a successful negotiation of TTIP. However, of those people who put figures on this, I hesitate a little. How much the benefits will be, or how soon they may come, is an unknown and is only subject to pious hopes and, in my view, random speculation. For instance, a great deal will depend on the negotiating skills of the Commission in the months and years that lie ahead of us. In my experience, the negotiating skills of the Commission certainly used to be patchy. I can remember just a few years ago I aroused the wrath of that lovely man who many of us miss so much, the noble Lord, Lord Grenfell, when he had been told that I had been addressing a large audience in Brussels. I had been recalling the period when I was a member of the Agriculture and Fisheries Council of Ministers and said there were some members of the Commission whom I would not feel comfortable asking to go to market to sell a cow of mine.
Quite frankly, the Government must keep a very close eye indeed on this negotiation as it proceeds to ensure that the Commission is not giving away what it might be tempted to give away to get a deal. We should understand that the Americans do not take prisoners in negotiations of this sort. The noble Lord, Lord Liddle, referred to this, and he was absolutely right. It has been referred to earlier and the noble Lord who just spoke referred to it. I was deeply shocked by the take-it-or-leave-it attitude of the members of the United States Administration from the Treasury who we met. They refused to accept that financial service could be part of the negotiations. As my noble friend the chairman said, this approach is just unacceptable in a negotiation of this sort, and I hope that the Commission will be extremely tough in saying that it is unacceptable.
As has been mentioned, our report makes it clear that the largest part of an agreement will be on the issue of non-tariff barriers; they are much more important than the relatively low level of trade tariffs. The noble Lord, Lord Brittan, who came to give evidence to us, pointed out that the previous negotiation failed because an agreement on non-tariff barriers could not be arrived at. My great concern with regard to non-tariff barriers is that a successful negotiation might not give us everything that we would like because of the federal structure of the United States and the underlying structure of states’ rights. As I kept saying during the course of our inquiry, there is a danger that an agreement could be made that would be made effective at federal level but would not be fully applicable at state level. The danger is that individual states would be free to cherry pick the details of an agreement, endorse what is to their benefit and ignore the less attractive ones. This would be especially difficult over procurement issues, although procurement fairness within the EU on this side of the Atlantic leaves a certain amount to be desired and is nothing for us to be proud of. The reference in paragraph 136 of the report to the example of the Canadian agreement with the European Union is relevant here. The final sentence of that paragraph states:
“The Canadian provinces had thus ‘participated fully’ in the negotiations, which had resulted in access to an estimated 70 to 80 per cent of the Canadian procurement market between the federal government, the provinces, and the large municipalities”.
I think that we ought to apply ourselves to seeing what we could adapt from the Canadian agreement.
I will say a word about some of the agricultural problems, and here I declare an interest as a recipient of funds from the common agricultural policy. When this negotiation started, people were saying that agricultural problems could be among the biggest stumbling blocks, but it seems to me that at last Europe has begun to dismantle some of its headstrong opposition to, for instance, genetically modified crops. I understand that agreement has been reached in the past week or two that will mean that for the first time, quite rightly, properly controlled genetically modified crops will be grown in Europe, and that is welcome. However, the United States should realise—I am saying this for its benefit—that opposition to, for instance, genetically modified crops and growth-promoting hormones is really contrary to the science and is a straight policy of trade protectionism. When Europe banned artificially enhanced hormone treatment for the production of beef, I was the only Minister who voted against that ban. It was done in spite of the scientific evidence. It was evidence that the members of the Commission had requested, and when they got it, they suppressed it because they did not like the advice they got.
People should understand that these hormones appear naturally in beef, whether artificially enhanced or not; they are a natural function and natural part of beef. Quite frankly, it is impossible to tell from a piece or side of beef whether that animal was given artificial growth-promoting hormones—I say artificial but they are exactly the same as the natural ones in the meat. It is impossible to tell whether they were implanted in the beef or not and, quite honestly, the European Union’s opposition is nothing more than good old-fashioned luddism.
Here again there are lessons to be learnt from the Canadian agreement. During our discussions and evidence-taking, we came across relatively few outright opponents of the negotiation and, principally, they came from among the representatives of organised labour. However, I felt that the line that the American trade unions took and their approach, while understandable, were largely driven by fear of the unknown and that they were preparing for something that might be unattractive.
I was really surprised, when we went to Washington, that TTIP was far from the front of the minds of some members of the United States House of Representatives and the Senate. I think it was the noble Baroness, Lady Henig, who referred to the street outside and the noble Lord, Lord Radice, who referred to other places in the United Kingdom, where not many people know what a TTIP is. It was not terribly different on Capitol Hill.
Understandably, we now have a lull in the hard phase of the negotiations themselves. This is totally understandable with the elections we have just had in the European Union and the mid-term elections on Capitol Hill coming in only a few months’ time, together with the lame-duck Commission, pending the appointment of a new one at the end of the year. However, come 2015, early next year, there will be an 18-month window to come to an agreement. I believe that the President will be very keen indeed to achieve a settlement over TTIP in the final months of his presidency. The stakes and the benefits to his inheritance are very great, and I think he will go very strongly for it. My concern is that, if there is a totally Republican Congress on Capitol Hill, it may be tempted to play silly games in order to thwart him. That would be the greatest misfortune. It is vital that Congress gives the President the fast-track arrangements, which mean it cannot pick from the agreement but has to either take it or leave it. We were assured when we were there that Congress would give fast-track permission to the President, but the last two years of a presidency can sometimes give rise to actions in all parliaments which are not exactly logical.
I just hope that, in the 18 months of this window from the beginning of next year, we can achieve an agreement which will be for the benefit of both the Americans and Europe—including, in particular, the United Kingdom.
Lord Jones (Lab)
My Lords, it is good to follow the insightful speech of the noble Lord, Lord Jopling, and I most sincerely congratulate the noble Lord, Lord Tugendhat, on his wise and thoughtful introductory speech. I remember his high competence as a Minister in another place, but that was a generation ago. We are older now and parked in your Lordships’ House most patiently. The challenges for British industry today are ever greater as China, India and other nations waken and assert themselves in highly competitive global trade. Indeed, the emerging superpowers may elbow us aside.
I noted the quite deliberate deployment in the report of the words “strategic”, “ambitious” and “template”, and from my own particular point of view the key words “employment” and “prosperity”. Yes, I believe that the member states are losing it, and yes, that vehement opposition might always be expected from the United States concerning finance. Recent publications about the historic Bretton Woods conference illustrate the predisposition of the United States to insist on its own way. Indeed, the late, great Maynard Keynes, ill and isolated as he was, found the going at Bretton Woods more than tough. Let us hope that this trade agreement will be easier, but the great republic is somewhat imperial now, and the chairman of the committee who brought forward this report has given us a shrewd assessment that is far from sanguine when looking at the issues ahead.
Surely the committee was right to emphasise the word “geopolitical”. With luck, the Transatlantic Trade and Investment Partnership will help to rebalance the relationship between the United States and Europe. Referring to Dr Hamilton’s evidence, the old link of NATO is perhaps a little wobbly. In the list of witnesses, one can see the name of Edward Barker, the head of the Transatlantic and International Unit at BIS. He is surely an able civil servant who can assist Ministers in realising our objectives.
It is heartening to see that the report champions our motor industry. In industrial Deeside in north-east Wales, we have a Toyota engine plant of considerable size, great excellence, and with even further potential. It is well managed, and it would be advantageous to it if the proposed partnership could prosper. But I would posit the question: what of our great aerospace industry and its place in the report? Will the Government make a commitment to championing the British aerospace industry and ensuring a level playing field on which it can compete? Last November, Washington State announced that Boeing would receive a record $8.7 billion package of tax breaks. There must be a risk that an intervention on that scale will severely distort the market in Boeing’s favour and thus limit the ability of others to compete effectively. What assurances can the Minister give that this issue is being addressed by the European Commission and the WTO? Do the Government agree that our aerospace sector needs a level playing field on which to compete? How will the Minister help?
The signals I have had so far from the Secretary of State, Mr Cable, have been helpful. The champion of British interests in the Toulouse headquarters of the giant company Airbus, the great and successful rival to Boeing, is the highly respected and successful Mr Tom Williams, the executive vice-president of programmes, who may well be known to the Minister; he may well have met the Minister and had positive talks.
I would like to think that this report will help Tom Williams in his and Airbus’s strategic objectives because I know that in this nation Airbus employs directly some 14,000 people in two great plants and tens of thousands of other workers are engaged in work related to Airbus. Successive Prime Ministers—Mr Blair, Mr Brown and Mr Cameron—have gone to one of the greatest aerospace centres in the world, the Broughton plant in north-east Wales, where some 7,000 people are directly employed. This is a reservoir of great skills and great achievement. The industry in Britain now earns in excess of £8 billion a year. It is a colossal contributor to prosperity and employment and I hope very much that in his thoughtful consideration of this debate the Minister will be able to give me some assurances.
Lord Stevenson of Balmacara (Lab)
My Lords, I congratulate the chairman, the committee and, indeed, all the staff on a very comprehensive and informative report. Noble Lords may be aware that there has been a bit of a run on it in the Printed Paper Office. You can no longer get first editions; we are now on to second editions, so that proves something. Given that it was published only about a month ago, it is clearly something in which we should all take a great deal of interest. I thank all speakers who have contributed to the debate, including those who were not on the original committee. Again, that shows the wider interest in the topic, even though, as has been said, it will not catch the casual passer-by very easily. That will change, I think. There are things here that will reach out and become important.
We have heard tributes to the chairman, which I am sure were correct. He has become a friend and I am aware of his abilities in this respect. The committee has done its work very diligently by taking a huge amount of evidence, both here and abroad. That evidence is available and I have read quite a lot of it. It is extremely interesting and well marshalled into the report. Again, this sets our committee structure at the very heart of what we do. Something that does not get enough publicity, perhaps, are the efforts that the House makes to do a job properly, efficiently and in a timeous way so that the work is available for people to use as the debates move forward.
It is a pity that the government response has not been made available but I am sure that the Minister will explain what the issues are there. Given that both he and his predecessor gave evidence, perhaps we are not missing too much but it would be nice to get a sense of where the Government are coming from, particularly in relation to the pleas to pick up some of the main points from the report and use them to help get through the rest of the process.
It was said earlier in the debate that this issue had cross-party support. I am happy to confirm that from this side of the House, if it has not been obvious from the speakers who have contributed to the debate today. We take the view that TTIP has huge potential, and we very much support the principles behind the negotiations. We hope that it will lead in turn to job creation, higher wages for employees and a better deal for consumers. Europe and the United States are our most important markets today; indeed, the US is the UK’s biggest export market, and the UK economy attracts a significant level of FTI from across the Atlantic.
Crucially, as I have said, the benefits of the trade deal should filter down to employees and consumers. We would be concerned, having given our support for this, if any deal that emerged from it led to a watering down of workers’ rights, for example, or if in some sense the benefits that flowed did not get passed on to consumers through increased choice and reduced prices. However, as my noble friend Lady Henig said, does the whole experience of this process not rather prove the point that the UK’s national interest lies in remaining at the heart of a reformed EU, using our special links with the United States to achieve something that will be for everyone?
A number of noble Lords have said that the problems that are inherent in the TTIP as it currently stands—its weakness, as it were—is that it is almost too ambitious, and that it is probably the most complex trade and investment package we have ever attempted to put together. People have also argued, though, and I agree with them, that that is also a strength. The agreement’s scale is enormous; Europe and the US together account for nearly half of world trade in terms of GDP, although that will change as new markets develop in China, India and other places. The point has also been made by several noble Lords that the issues in play here relate not just to tariffs but to non-tariff barriers to trade. In some senses, and this is important for the future as well, the deal that might result from TTIP could become a template for a new generation of 21st-century trade and investment agreements, so, as many noble Lords have said, it has a strategic dimension.
As the noble Earl, Lord Sandwich, reminded us, attention needs to be paid to third-world accessions to either this agreement or ones similar to it. TTIP should be not simply a free-trade model but something that works against protectionism wherever it comes across it. It is also possible that in the process of developing this trade agreement, other desirable policy objectives could be obtained. For instance, while I do not think that this is necessarily a negative in terms of the debate, it is important to recognise that the US has still ratified only two of the eight major conventions of the ILO—conventions that we and all our EU partners have ratified. If it is possible to use the process of debate to bring forward desirable policy outcomes such as ratification within the ILO, that is also a plus.
I turn to some of the detail of the report. We are encouraged that the report says that in the committee’s view it should be possible to make progress on UK objectives in relation to TTIP—for example, with regard to the motor industry and geographical indications. That sense of a possibility emerging and a chance that it will come through is important for those who have to carry forward the negotiations. However, it is certainly true that there will be some difficulties in US public procurement, where there will be difficulties in obtaining agreement at the sub-federal level. The noble Lord, Lord Jopling, made an important point when he warned about cherry picking. The noble Lord, Lord Tugendhat, said that he wanted odds—actually he asked what price it was, but I suspect that he was thinking of a betting analogy rather than a straight cash transaction—on whether the sub-federal level would be included. I would be grateful if the Minister could give us his thoughts on that. The noble Lord, Lord Lamont, said that he thought four states were ready and willing to come into this, but I hope that there will be a higher number than that.
The question of whether financial services are included is important. It will be in the interests of the UK, rather than necessarily in the EU’s more general interest, for that to be resolved quickly. I have heard the argument about it being impossible to have negotiations without all cards being on the table, but maybe we should not be too restrictive on that; there may be things that can be done within the overall scheme that will help some way down the line. Confidence and experience need to be built up but, from the UK’s position, financial services are clearly very important and this will be one of the hardest-fought issues.
There are others which must concern us. For example, the audio-visual sector is a global success story in terms of the UK’s involvement, not just because of creativity or the level of investment, which is now very good, but because it delivers public value to domestic audiences as well as global ones. This comes because we have a very vibrant ecology comprising both public and private sector organisations. They are supported in turn by a complex set of policy interventions designed primarily to address market failures and to act increasingly as a counterbalance to the inherent asymmetry between the sizes of the audio-visual markets in the UK and in the US.
I say that because I am aware that there have been concerns about audio-visual activity in other parts of the EU. I will be grateful if the Minister, when he responds, could say where we are with audio-visual and whether that is also to be treated differently from other areas, as financial services may be. I should also like to know whether he recognises that there are some concerns about, for instance, the BBC and public service broadcasting in relation to that, which we would need to have preserved if we were going forward on this.
My noble friends Lord Radice and Lord Giddens mentioned the issues about the living agreement idea, which did not get much discussion elsewhere in the debate. I think it is a rather interesting idea. Clearly, getting to an agreement of such complexity will be hard enough but finding a way of constantly updating it may well be another difficulty. It is not something to which there is an easy answer. When the Minister responds, I would be grateful if he could update us on where he thinks the mechanism for that would exist. It is obviously in everybody’s interest if he can find one. I am just not quite sure if everybody even has the language to describe what it would be—whether it would be continual sessions around the negotiating table in order to update and change it or whether there would be some lock-step or other agreement that would allow us to do it.
My final two points concern the publicity for this issue, as we all, I think, share a sense of worry that the good things that are involved in TTIP do not get picked up, either in the press or in general debate. Who are the proponents of this? How can we convince them that the purposes or the possible gains from TTIP need to be put forward in a compelling way? This task, I think, cannot be left to the officials concerned. It has to be picked up politically. Trade Ministers will do it, I am sure, but a wider conspectus is required if we are to get a real sense of a communications strategy involving Ministers, involving the public and getting support for this.
Finally, a number of noble Lords have mentioned the political window and how difficult it will be to find it. I am certainly encouraged if it is as much as 18 months. My feeling is that it will be rather less than that as the issues that need to be addressed include the requirement of the US Administration to secure a trade-promotion authority. We have to anticipate both the mid-term and the presidential elections in relation to that. With all those out to play, there are obviously some issues. It is certainly difficult for negotiators even to get to the point where they can say that there is an agreement to sign, but if it is done within a very constrained timetable that would be very difficult. When the Minister responds, it would be interesting if he could respond on this particular point.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Livingston of Parkhead) (Con)
My Lords, I am delighted to respond for the Government in this important debate. First, I would like to express my appreciation to my noble friend Lord Tugendhat and the whole committee for their thoughtful assessment of the opportunities and the challenges presented by TTIP. It is rare that a Minister can say he found his appearance before a committee to be both stimulating and enjoyable and also mean it.
I confirm to my noble friend Lord Jopling that the report has indeed been warmly received by the Government. The Government are considering its findings and will respond—we have two months to do so—by 13 July. If the noble Lord, Lord Stevenson, would like a first edition of the committee’s report, I think a deal could be done, as I have two copies. I have to say that the report was an excellent read, something I read from cover to cover. I am also grateful to all noble Lords who have spoken this afternoon for their contributions during the debate. I will attempt to cover the points raised, and I apologise in advance if there is anything I miss. I will write in detail later.
I welcome the report’s recognition of the significant opportunity that TTIP offers to reinforce what is already a very strong relationship between Europe and the US. As many noble Lords, including the noble Baroness, Lady Henig, said, the agreement could have not just an economic impact. There is an opportunity for a major geopolitical impact to reinforce the relationship between our two continents, but I will concentrate on the economic effect.
TTIP is an ambitious agreement. The numbers are by their nature speculative in some ways because we do not know what ultimately will be in the agreement, but it could be worth £10 billion annually to the UK economy alone. Whatever the number, it will create jobs and reduce prices for consumers in the EU and the US. It should not only eliminate almost all tariffs—that is sort of de rigueur in trade agreements now—but it goes much further. It could provide better access to markets and drive regulatory coherence across the Atlantic. In fact, regulatory coherence will account for more than half of the benefits that could arise from this agreement.
As we, the Commission President and President Obama have all emphasised, this is not about lowering standards—I really want to emphasise that—but about aligning or mutually recognising different standards that have similar intents. This represents a new territory for a major international trade agreement. I agree with noble Lords that it is not easy, but we should go for it.
Many detractors seek to describe the benefits of TTIP as being for big corporations, but I think that is entirely wrong. Many big corporations have the ability to overcome regulatory differences. If you have production lines that make 10 million of something, you can have a couple of them making it in a slightly different format. If you have one production line making 10,000 of something and there is a slightly different arrangement in the EU or the US, the net result is that you probably do not export at all. It is actually small and medium-sized businesses that will benefit far more. They are the ones that suffer through non-tariff barriers and differences in regulation.
There could also be a substantial gain for consumers. The EU’s estimate—and, of course, it is an estimate—is of a potential average gain of more than €500 for a family of four. That will come through lower prices. More choice, more trade and more competition give lower prices.
The noble Earl, Lord Sandwich, made a point about the impact of TTIP on other countries, and some have made the point that it will have a negative impact on other countries. I believe the agreement will benefit other countries. First, it will increase global growth, and that gives an opportunity for many. It will also allow countries wishing to export to two of the largest trading blocks in the world the opportunity to make one version of a product. Later, I will talk about the idea of a living agreement. I certainly share the view expressed by many noble Lords that the agreement should not be static and that other countries should be able to join. Perhaps we are starting to create worldwide standards for others.
While TTIP could bring huge benefits, concerns have been expressed—the noble Baroness, Lady Quin, among others, expressed them—about the impact of TTIP on regulatory standards, the effect of the ISDS clause and what it could do to public services. I shall address these issues in turn. As I said earlier, TTIP will not erode regulatory standards in the EU or the US. It is interesting that, when I go to both continents, I hear the complaint that the other has lower standards. We are talking about high standards in both. TTIP provides a good opportunity to take stock of existing rules on both sides of the Atlantic and remove any unnecessary regulatory duplication. This is not a static process. It is very important that we create a living agreement to deal with rules that have diverged over time for no reason at all.
My noble friend Lord Lamont raised a point about the difficulty of this process. He is right that it is difficult, but it has been done in other industries, sometimes with varying success. Accountancy bodies have managed to create a body of international accounting standards and we are seeing convergence over time. I know from my past in telecoms that one of the reasons that you can connect calls around the world is because of global standards, so it is possible. It will be easier for some industries, such as the automotive industry, and for some it will be more difficult. Again, that can be done without lowering environmental, labour or consumer safety standards.
Some noble Lords have raised how the inclusion of an ISDS clause in TTIP might affect a state’s right to regulate. These provisions, which will help to create a positive investment climate, are not new. They are being described by many NGOs as though they have been invented just for TTIP, but in fact the UK currently has over 90 of these sorts of agreements with other countries. To date, there have been only one or two cases against the UK and neither has been successful. However, investment provisions in TTIP must strike the right balance between protecting investors on the one hand, which we would want for investment into the UK and for our investors outside the UK, and on the other hand protecting the host nation’s right to regulate and determine policy.
The European Commission has recently launched a public consultation, which we very much welcome and we are listening to the concerns. It is good to have discussion because there is much misinformation. While some of the concerns about ISDS appear to be based on accidental—or, sometimes I suspect, intentional—misunderstanding of ISDS clauses, it is important to make the dispute resolution more transparent and to limit spurious claims. It is in the UK’s interests to create a modern investment agreement that will both encourage investment and create a model for future agreements with other countries.
Concerns have also been expressed that TTIP will somehow have a material impact on how the UK provides public services. It should be noted that we already have certain obligations under the General Agreement on Trade in Services. We are not seeking to expand those, and we have made it clear to the European Commission that it should be for member states to decide whether or not to open up public services to competition. This is the approach that the Commission is indeed taking.
A number of difficult areas were raised. My noble friend Lord Tugendhat mentioned financial services, which were also mentioned by the noble Lord, Lord Giddens. First, it is too early to start saying whether anything is in or out. Certainly, we will try to push back against red lines. We will continue to work with the Commission and industry—including in the US —regarding financial services. It is important to remember that financial services is not just banking; it also includes areas such as insurance and fund management. We must also recognise that, with Dodd-Frank, it is a sensitive time in the US. We have to be clear that we are not seeking to weaken US protection for financial services.
I agree that we must make a better job of explaining why their inclusion is important. There are a number of areas on which we will push further, but financial services are central to trade. If you do not have aligned financial services regulations, that will itself weaken the capability for global trade. It is also a global industry, as almost every financial services company operates around the world. There are conflicting rules that are meant to do broadly the same thing—protect banks and make sure that they do not cause systemic issues in the economy—so it is in everyone’s interests to deal with those. We have got to find ways of coming together to improve that.
That is not the only thing being challenged—the audio-visual industry was mentioned and people have made a number of other attempts to draw red lines. We will, however, continue to push the financial services industry, and we will continue to stress that this is not about weakening standards. We are not alone in that. The French and the Spanish, for instance, also have large interests in the financial services sector and are working with us in pushing these areas.
I now turn to another difficult area, which is procurement. It is important for Europe to obtain openness in US procurement, largely because Europe is today more open. However, I agree with a number of comments made by noble Lords about how Europe could also work on its single market. That is something quite separate that we will continue to push very strongly. It is important to gain agreement with America on the federal level and the state level, and the more that Europe can set an example, the better. States of course present a particular problem, but a lot of people have referred to the success that we have had with Canada on CETA, and the same is true for the US. We will continue to push the issue of the states as well as the federal government being included in the agreement.
One of the ways we are seeking to do that is with publicity. There has been some very good work by the British embassy in the US, which has produced a paper outlining the benefits of TTIP to every single state in the US in terms of jobs and economic benefit. I think this is the right approach. We have also stressed that the United States will not be able to pick and choose among individual states for individual matters.
I turn now to other issues, one of which is GIs or geographical indications. A number of European countries have concerns about the willingness of the US to accept them—feta cheese is raised in more Council meetings than you would believe. From the UK’s point of view, we believe that composite GIs are appropriate, such as for “Scotch whisky” or “West Country cheddar”, but we do not necessarily believe that cheddar on its own is something that needs to be protected, as it has become generic—the same probably applies to the hamburger and the frankfurter. We will continue to seek a balance on GIs and push for that.
On energy, which was mentioned, we are pushing very much for free trade. Recent events involving Ukraine and Russia have really indicated that a free trade agreement must include free trade in energy. That is something that is important on an economic level but even more important on a geopolitical level, and I suspect the US is increasingly recognising that.
The issue of China was raised by the noble Earl, Lord Sandwich. Today we have a very large Chinese delegation, including the Chinese premier, visiting the UK, and we will continue to discuss a free trade agreement. We have raised with the EU the commencement of a free trade agreement and we have seen greater Chinese interest in pursuing that. The Chinese were obviously involved in Bali and they have been involved in TISA, which is the Trade in Services Agreement. We have also seen them trialling free trade zones within their own country, changing their attitude as to what is and is not allowed. We would very much like to bring China into a free trade agreement. I think it is probably too early to suggest that China could be one of the early candidates to be included in a living agreement under TTIP.
We are also pushing free trade agreements with Japan and India—Canada has recently completed talks on the Pacific Alliance, which I think is very interesting—as well as, of course, multilateral trade agreements. Bali was a success, but we have to move on from that and the Doha development agenda is very important to us as well.
The noble Lord, Lord Jones, raised a point about US subsidies for aerospace. I will very much continue to champion the British aerospace industry, including Airbus and Rolls-Royce. Indeed, I visited Bombardier in Northern Ireland recently, where they are making the wings for the C series aircraft at one of the most advanced wings factories in the world. Every 2.5 seconds an aircraft takes off somewhere in the world powered by a UK company. We are the second largest producer in the aerospace industry, so I absolutely champion it and will continue to do so. There is a dispute about US subsidies for aerospace that has been ongoing at the World Trade Organisation between the EU and the US concerning the US Government’s funding of aircraft development programmes. The European Commission has already raised concerns about this subsidy package, and the Commission and the UK consider it to be an extension of the existing measures that the WTO has already found to be illegal. So we will continue, together with our EU partners, to take a robust line on this dispute. I think it is something that is separate from TTIP, but I can assure the noble Lord that both this Government and our EU partners are very much behind taking a robust line.
My Lords, I agree with the many noble Lords, including the noble Lord, Lord Radice, who raised the issue of making the case for TTIP. I also agree with the committee’s recommendation that it is really important that the Commission and all member states continue to reach out to citizens and civil society to set out the opportunities that TTIP will provide. It is important that we debate it openly, talk about the benefits and counter some of the myths. Within the UK, there are regular meetings with core stakeholder groups representing a number of business groups and, for instance, the consumer group Which? as well as a group of NGOs. We have also organised sectoral round tables as well as national roadshows in conjunction with BritishAmerican Business.
The noble Lord, Lord Radice, asked about the involvement of senior Ministers. I am sorry that I do not rank among them, but I hope that Ken Clarke—a big beast if ever there was one as a Minister—who has taken a special role in promoting TTIP will meet that requirement. In fact, he has been touring around both the UK and parts of Europe pushing for TTIP. Also, across the Cabinet, the Prime Minster has made it very clear that this is one of our key objectives and it will be so in the next period for the EU. So across the UK and across government we will push it very strongly.
I would caveat some comments that were made about the support for TTIP across Europe. Yes, Germany is unhappy in that it has some questions about ISDS clauses and it is unhappy about Snowden, but Germany is pro free trade, as is France. When I was in Spain last week, we saw very strong support for TTIP. From speaking to the other 28 Trade Ministers, I know that they are very supportive, so I think there is a strong majority in the Council. Of course, we have to see what final agreement we actually get.
As the negotiations become more substantive, we will increase the range and the frequency of our engagement activities. This will involve more stakeholder events, more involvement with the press and more digital engagement to promote the dissemination of accurate, substantive, user-friendly information that shows what the benefits are to small companies and to individuals. We will be holding, and participating in, a number of further stakeholder events around the country. For example, in a few weeks’ time there will be another regional event, and the Liverpool International Festival for Business includes an event in a few days’ time. So there is a series of events planned and we recognise the need for Government—as well many other parts of civil society and, indeed, this House—to make the case for TTIP.
There have now been five rounds of TTIP. On the last round in Arlington, Virginia, I have provided updates to the European Scrutiny Committee, to both Houses and to the All-Party Parliamentary Group on European Union-United States Trade and Investment. As the noble Baroness, Lady Henig, reminded us, a lot has actually been achieved in a year. It is only a year and we have made huge progress. Our assessment is that we are making reasonable headway, but it will be more difficult as we come across more difficult things. It is not easy—important things rarely are. We have got the mid-terms to concern ourselves with in the US. Hopefully, after that, fast-track authority will be easier. At the same time, the US is a bit focused on TPP with the Pacific countries, but we remain very focused on achieving a result by 2015.
My Lords, in summing up, I believe that TTIP is an important and ground-breaking agreement, but it will require a lot of hard work. Pascal Lamy, the former head of the WTO, commented:
“The new era begins with the Trans-Atlantic Trade and Investment Partnership”.
He contrasted it with every other trade agreement that had gone before. Someone as distinguished as the noble Lord, Lord Stevenson, said that it is a 21st century trade agreement, and I could not agree with him more. I thank the committee and the noble Lords who have spoken in the debate today for their role in helping us on the journey to achieving a breakthrough for the UK, for the EU, for the US and for the world economy.
Lord Tugendhat
My Lords, this debate has taken very much the course that I had hoped. Each speaker has approached the issue from an individual standpoint and has emphasised particular aspects of the report and the TTIP negotiations, yet all have cleaved to the central proposition that a TTIP agreement is both very important and highly desirable. I will mention only one of the speeches, that of the noble Lord, Lord Jopling, because of the optimistic tone he took, the way in which he positioned the pace at which this race is run, and how difficult it is to judge in the early stages how it might be in the later stages. He added to our debate a tone that was both optimistic and realistic.
Taken together, however, we confronted the Minister with the full range of issues and questions that were raised in the report. I thank him for his positive and comprehensive response. Both his manner and his content inspire a good deal of confidence in the way that this dossier will be handled by the British Government. He said that other Ministers would also become involved and mentioned my old friend Ken Clarke, whose contribution has been very great. I will press him a little further to say that we also need to hear from the sectoral Ministers—those responsible for the environment and agriculture, Treasury Ministers and the rest. I also remind him that a year ago the Prime Minister launched this initiative at Lough Erne and made it clear that this was a major issue for the United Kingdom and for the European Union. When the Prime Minister attends European Councils and bilateral meetings with other European leaders I hope that he, too, will be able to make it clear that this remains, as he said at Lough Erne, a once-in-a-generation opportunity. I beg to move.
Consumer Rights Bill
Personal Service Companies (Select Committee Report)
(10 years, 6 months ago)
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Baroness Noakes
That this House takes note of the Report of the Personal Service Companies Committee (Session 2013-14, HL Paper 160).
Baroness Noakes (Con)
My Lords, I am delighted to have this opportunity to move that this House takes note of the report of the committee on personal service companies.
The committee was part of last year’s experiment of setting up Select Committees for half a Session in order to tackle discrete topics. Our committee was set up in November 2013, and we finalised our report at the end of March 2014. I am delighted that seven other members of the Select Committee have put their names down to speak in this debate. We had an excellent committee, and I place on record my thanks to them for their hard work and for their insightful contributions to our report. I also record my thanks to our committee clerk, Patrick Milner, who coped magnificently with being thrown in at the deep end for his first assignment on joining the staff of your Lordships’ House. He was very ably supported by other committee staff, and I also record my thanks to the committee’s special adviser, Anita Monteith.
The Government produced their response last week. While I thank them for that response, I cannot say quite as much for its contents. I will quote just one outside view of the Government’s response:
“Lots of words, in fact saying very little … Looks to me as though it was written by a PR agency… what they do say is simply the same old trite clichés”.
I would not express it quite like that, but I know what they mean.
The subject of our report is personal service companies, but much of it is about how the modern flexible workforce interacts with the tax and national insurance system. No discussion of that can exist without delving into something called IR35, which is anti-avoidance legislation that first appeared in the Finance Act 2000. It is called IR35 for the very simple reason that the detail of the proposed legislation was first announced in a press release issued by the then Inland Revenue in its press release No. 35, which supported the March 1999 Budget. The name has stuck despite many changes, both before the legislation was first enacted and subsequently.
Of course, that took our committee into the territory of HMRC, which is responsible for administering the tax system, and HM Treasury, which sets policy. We held two evidence sessions with HMRC officials. As will become clear, we were not uncritical of HMRC, but had no issue with its co-operation with us. I wish that the same could be said of HM Treasury. My noble friend Lord Higgins will be picking up on this, but I will just say that the whole committee was “disappointed” that the Exchequer Secretary refused to give evidence. To rub salt into the wound, he also refused to allow Treasury officials to do so.
There are no precise estimates of scale of the use of personal service companies, but the general view was that there were around 200,000 and that their use continues to grow. Personal service companies are typically used by contractors or freelancers to offer their services, particularly in IT and in the oil and gas industries. However, they are found in all business sectors and, as I shall come to later, in the public sector. Companies using personal service companies told us in evidence that they generally use freelancers and contractors on things such as projects or time-limited activities, which gives them the opportunity to acquire those services without the encumbrance of employment rights.
On the contractor side, we were told that there were many reasons for individuals to use personal service companies. There is no doubt that the opportunity to pay lower amounts in national insurance and tax is among those reasons, but it is not the only one. The flip-side for those individuals is that they forgo employment rights. However, we received evidence that the individuals concerned did not want to be regarded as employees and had no desire for such rights.
Our tax system developed in an era when freelancers and contractors did not feature greatly. In this country we tax sources of income, and there is a sharp distinction between employment income, trading income and other sources of income. The world of work has many shades of grey in it, but they have to be fitted into our tax system. Successive legislation has taken many of those grey areas, which are not employment in a contractual or general law sense, and treated them as deemed employment. IR35 is part of that theme.
One of the things which surprised us is the extent to which a whole industry has grown up around IR35. That indirectly supports the evidence we received of the burdens of compliance. On that basis, we challenged whether that part of the tax code was cost effective. We received evidence from HMRC about the value of IR35. It told us that it amounted to £550 million, but that only £30 million of that was direct Exchequer yield. The remainder was based on calculations of how much tax would be at risk if the IR35 rules did not exist.
We were not convinced by some of these calculations and recommended that a detailed assessment be published, both of the Exchequer protection claimed for IR35—more than half a billion pounds—and of the costs of taxpayer compliance. The material provided in the Government's response provides hardly any more information than was given to the committee in evidence, and I remain sceptical about those figures. I do, however, welcome the commitment from the Government to give an updated administrative impact assessment this autumn, and I hope that HMRC will be open to proper debate on both the costs and benefits of IR35.
We also queried the resources allocated by HMRC to IR35 compliance, which appeared to us to be disproportionately small compared with the size of the personal service company population, and we asked for greater clarity on the costs and related yield. The Government's response does not really answer our points and certainly gives no comfort that HMRC has a firm grip. If I were in the Treasury, I would be distinctly concerned about the approach of HMRC, which can be summarised as, “We are doing a bit more than we used to but we don’t know how much we are spending on it or what we get for it”. We were, however, pleased to see that HMRC will look again at the confusing questions about service companies on the annual tax returns.
The Office of Tax Simplification had looked at IR35 in 2011. It recommended suspending IR35, but also offered an alternative of improving the administration of IR35, and that is what the Government chose to adopt. We spent some time looking at the various components of that—namely, an IR35 forum, some business entity tests, and a contract review service. We were not at all sure that any of these was working in an optimal way and there was particular criticism of the business entity tests which were supposed to help guide taxpayers in complying with the legislation but it was not clear that they did.
The Government’s response to our recommendations merely references an existing review by the IR35 forum. I shall take that review on trust, but I express personal reservations about whether anything much will change.
The freelancers and contractors I have been talking about are generally well paid, which is why there are attractions in corporate structures which offer opportunities to minimise tax and national insurance. The committee also turned its attention to the issues of the lower paid, who are also well represented in the flexible workforce of today, often through agencies. We heard that many lower-paid workers were in the past employed through managed service companies, whose advantages have already been neutralised by anti-avoidance legislation. Umbrella companies are now used instead to employ lower-paid workers who are undertaking temporary work. We heard that there was a very real problem of those workers not understanding the effect of those arrangements and what their rights and obligations were.
We had two basic recommendations. First, the Government should publish a short guide about the basic differences between employment and self-employment, and make that available on multiple platforms. The Government’s response simply stated that HMRC already had something online. The committee emphasised the proactive use of multiple platforms, including paper, for good reason—we were far from sure that the individuals who needed help would in fact be reached by a digital resource and nothing else.
Our second recommendation was that the Low Pay Commission should be asked to look at the use of intermediary companies for the low paid. The Government did not state whether they would do this. I hope that the Minister will clarify that today.
In addition, we heard in evidence that umbrella companies abuse expenses dispensations from HMRC, so we recommended that HMRC took more enforcement action and also ensured that dispensations were granted only where appropriate. I am encouraged to hear from the Government that the Office of Tax Simplification is to look at dispensations, but turning them into exemptions will not do away with the need for effective compliance, and the Government’s response here lacked real conviction.
Lastly, we looked at the use of personal service companies in the public sector. This is not new territory and there have been some causes celebres which had led to a Treasury review and to Cabinet Office guidelines which apply where there are appointments involving salaries of more than £58,200 per annum. We noted that large areas of the public sector—namely, much of the NHS and local government—were outside the scope of this review, as were all those on earnings levels lower than £58,200. We recommended that the Government look at these areas.
We also found that there was inconsistent application of the Cabinet Office guidelines and recommended that the Treasury should take the lead in ensuring compliance and in monitoring guidance.
I cannot pretend that the Government's response to any of our recommendations was encouraging. I do not think that the Treasury has shown any interest in finding out the full extent of the use of intermediaries or indeed in compliance with the Government’s own rules.
I hope that our report has shone a light on a difficult and complex area. The issues that arose during the course of our work have not been resolved by the Government’s reply, so this whole area of personal service companies must be regarded as unfinished business. I urge the Government to look again at their approach both to the higher-paid population and to the lower-paid population. I firmly recommend that the Government get their own public sector house in order.
Lord Myners (Non-Afl)
My Lords, I speak as a member of the Personal Service Companies Select Committee. It was a privilege to sit on the committee, not least because of the excellent leadership provided to the committee by the noble Baroness, Lady Noakes. The noble Baroness’s efficiency is already apparent in her summary today, which has left very little that is new for the rest of us to contribute. I therefore seek simply to underline one or two points made by her.
The work of the committee spoke powerfully of the contribution that your Lordships’ House can make in applying closer scrutiny to a complex and difficult area that is subject to the pressures of social and economic change, the way in which employers seek to employ and the ways in which those who seek employment offer themselves to the labour market.
There has been a substantial growth in the use of personal service companies and umbrella companies for employment. The committee, I believe, has done a first-class job in analysing areas where it was quite clear that from a public policy perspective neither HMT nor HMRC had a clear policy objective. There seemed to be a lack of consistency in the answers that we were given, masked behind a degree of contentment that was ill judged and hardly appropriate in the circumstances as they were revealed by the committee.
The noble Baroness, Lady Noakes, said that she was disappointed that the Exchequer Secretary to the Treasury declined to be interviewed by the committee. I would go further than that. When I served as a Minister in the Treasury, I regarded it as absolutely beyond question that if I were invited to account to Parliament, I should do so. The reasons given by the Exchequer Secretary, Mr Gauke, for not doing so were, quite frankly, not acceptable. The issues that we are looking at were not ones of HMRC implementation; they were a much broader policy issue.
There are prima facie reasons to believe that there is substantial tax leakage at the upper end through personal service companies, while at the lower end of payment there may well be social harm as a result of people forgoing, unknowingly or under duress, some of their employment rights. It was quite frankly unacceptable for the Treasury Minister not to accept either of the invitations from the committee to give evidence—and, moreover, to say that his officials should not give evidence.
Perhaps in that context it is not altogether surprising that we have had a very flimsy response from the Treasury to the work of the Select Committee, one that quite frankly shows a disservice to the hard work that was put in by the members of the committee, our advisers and the clerks. I sincerely hope that when the Minister sums up at the end of this debate, he will be able to give us more substance in his reply than we have received from the Government to date.
It is quite clear to us that IR35 causes many problems. I want to say that it is not working, but it is not entirely clear what it is designed to do. The HMRC officials who gave evidence to us seemed far from clear about how it worked in practice, or were unable to substantiate the figures that they gave us, and they seemed excessively reliant on the IR35 Forum, which seems to be somewhat unbalanced in its constitution, comprising as it does many people who have an interest in the economic activity known as IR35.
I hope that the Minister will go back to the Treasury and say, “We should not be as dismissive as we have been about this report”. Some fundamental and important questions are raised in it about the operation of an area of the labour market that is increasing in its substance and significance. Yet the message that we have from the Treasury is that it really does not want to take this matter seriously at all. I, for one, find it very difficult to understand why the Treasury has adopted that position, so I urge the noble Lord, Lord Newby, to convey to his colleagues in the Treasury that this is a report of substance that raises a number of important questions that deserve close attention from government.
Finally, as a former chairman of the Low Pay Commission, I would like to emphasise the important role that it could play in reviewing the operation of personal service companies and umbrella companies in the employment of the lower paid. There is, again, very strong reason to believe that people are pressurised into accepting employment through one of these arrangements without fully knowing or understanding the implication of their loss of employment rights. Those rights constitute part of a package of reward for work, which is not limited to the hourly rate, although that may be the most important element. Therefore, it falls entirely legitimately within the framework of the Low Pay Commission’s role and within the competence of that commission and its officials.
I very much hope that the Minister in his summing up will give noble Lords a clearer message on whether the Government are going to put this matter in the hands of the Low Pay Commission or whether we have to conclude, regretfully, that HMT just cannot be bothered to get to grips with this issue, regardless of the cost in lost tax revenue or the potential damage to employment rights of the low paid.
Lord Palmer of Childs Hill (LD)
My Lords, I, too, was a member of the committee and I thank my noble friend Lady Noakes for her incredibly able chairmanship of it. We received a very complex set of reports, which were often conflicting and incomplete. I shall not repeat her comments on the Government’s response, which did not really address many of the problems that were raised.
My noble friend Lady Noakes dealt in great detail with the report and the response from the Treasury. Perhaps I may take a more generalised look at this issue. I came to the Select Committee with the experience of 28 years as a local government councillor. With some relief, I stepped down this May. I also have a lifetime behind me as a practising chartered accountant, so IR35s and the whole concept of tax reduction were not new to me. My view before the hearings was that personal service companies were essentially a means of reducing income tax and national insurance. That was my view when I went into the committee. People who were self-employed were able to claim greater expenses against their income and thus reduce their tax. There was a difference in tax law for those who were employed. Any expenses claimed had to be wholly, exclusively and necessarily in the course of one’s employment. If you were self-employed, any expenses claimed had to be only wholly and exclusively; the “necessarily” did not come in and you could claim more expenses, thus reducing your tax.
Being a personal service company is cost effective for what I will for simplicity call the employer—although it is not the employer—paying via such a company. The so-called employer does not have to pay holiday pay, redundancy pay, sick pay or employer’s national insurance, as well as a number of other things. So you might say that it is pretty useful. The employee is able to reduce his tax and national insurance liabilities by using a personal service company. It is good for the employee and employer, if I may call them that, but not so good for tax-gathering, because it essentially reduces the taxes that the state receives.
I was particularly worried by the move to use personal service companies in local government, the BBC, health authorities and the like. There is an acceptable use, as mentioned by my noble friend Lady Noakes, such as in employing IT contractors for a specific task—a contractor who may well have many other clients, be on a short-term contract, and so on. But a test of being self-employed in the old days, when I practised as a chartered accountant, was that you had recurring fees, not necessarily from one but from at least two clients. You could very well be treated as being an employee by the Inland Revenue if you had only one payer of your fees. But is it really acceptable to have people in designated positions of chief executive, director, assistant director or head of a department who are not employees under PAYE? To my mind, this is the big fault of what we have ended up with through personal service companies. However, in the private sector, it has always been sound business practice to trade through a company to take advantage of limited liability. This could apply whether you were the local grocer, running an IT company or whatever. After six months of hearing very complex and often conflicting evidence, I saw the problem as being that a whole industry has been built up on how to trade as a personal service company and avoid the pitfalls of IR35.
It appears that very few personal service companies are investigated by HMRC for non-completion of the IR35. It was shattering to hear what a small number it is. If there is any benefit it is purely that of deterrence. This was addressed by my noble friend Lady Noakes’s comment about the larger sum which the Inland Revenue theoretically maintains has been saved. I reckon that personal service companies simply chance their arm that they will not be caught by the IR35 legislation and do not actually bother too much with it. I will not repeat the comments made by the noble Lord, Lord Myners, and my noble friend Lady Noakes about the Treasury Minister or civil servants not coming to give evidence. I agree entirely with what they said.
After six months on the committee, having gone into the committee with a completely different preconceived view, I came to the conclusion that the report and government response should be noted, which is what we are asked to do, but I am not happy with it. To my mind, having thought about it even after the end of the committee proceedings, I believe that one of the fault-lines is that public bodies should not pay senior employees through personal service companies, or, indeed, umbrella companies. By some form of government directive, enforced by the payment of grant allocation, these bodies should be forced to employ people as proper employees under PAYE. If these are government-style bodies, however one looks at them, then the Government have control in terms of the money that those government bodies receive, and one of the requirements should be that they do not try to circumvent the PAYE system, which most people in this country are caught by.
Other than that—this is my final, rather bold statement—we should abolish IR35s and let all the accountants, lawyers, contractors, organisations and politicians go and get a life, without IR35s. There will be, in my view, no real, noticeable loss to the Exchequer and if there is no noticeable loss to the Exchequer, can other noble Lords and the Minister please tell me why we have entered in this farrago of IR35s? It is a deterrent to do something which is not really deterring. If there were no IR35s, the Exchequer would not lose more than the very modest sums that my noble friend Lady Noakes mentioned. The idea of IR35s is almost a jealousy that some part of our community—our business community—is getting a better deal than anybody else. That may well be the case, but it is not a case to my mind, having come at this from completely the other angle as a practising chartered accountant. There is no benefit in the IR35 and when HMRC and Treasury Ministers deign to come back to your Lordships’ House on this matter, I hope that they will take that point into account.
Lord Hope of Craighead (CB)
My Lords, it is a real pleasure to follow the noble Lord, Lord Palmer of Childs Hill, who did so much to enliven our discussions during the six months that he referred to. I very much welcome the opportunity to debate the report of this committee. It was a privilege for me, as a complete beginner who had never heard of personal service companies, or indeed an IR35 before, to sit on the committee and take part in its deliberations. I pay tribute to the skilled leadership of our chairman, the noble Baroness, Lady Noakes, and of course, as she did, to the clerks who supported us, Patrick Milner and Matthew Smith, and our specialist adviser, all of whom played an important part behind the scenes in guiding us through a very complicated situation. I found it an interesting exercise but at times a rather frustrating one, for reasons that have been hinted at already. It was not easy to get hold of the facts; indeed, the facts, when there were any, did not seem very firm or reliable. Some employer groups and, notably, the Treasury were reluctant to give us any firm information at all. That was highly regrettable.
As I understand it, the complex, perhaps outdated, nature of our system of income tax and national insurance contributions lies at the heart of the problem. On one hand there are those skilled, hard-working and well informed people who prefer to trade through the medium of a personal service company, rather than as individuals, for perfectly legitimate tax reasons, because that is the nature of the work they do and because the markets in which they deal prefer to employ companies rather than individuals. It is good for business, it is good for their business, and I see it as a sign of a vibrant and healthy economy. On the other hand, there is real cause for concern, because there are people on very low rates of pay, often with a very poor command of English, who are being forced into a system they simply do not understand. The problem is to identify the steps that can and should be taken to protect the disadvantaged without impeding or, at worst, penalising those who are making proper use of the facility. Across the board, there is the risk of exploitation of the system simply to avoid tax and insurance contributions that ought properly to have been gathered in by the Revenue.
As the noble Baroness said in her introduction, we are considering the effect of an anti-avoidance measure. The main purpose of IR35, as I now understand it, is to deter people from disguising employment income through the use of intermediary arrangements. A personal service company can, indeed, be used for that purpose, but as our evidence showed, in many cases that is not why the arrangement is being used at all. One has only to consult Google—a rather shocking exercise in this field—to see what a huge industry now offers advice, perhaps some of it very proper advice, perhaps some of it not so proper, on how the system can be made use of. Just as the number of people who are becoming self-employed is growing, as we hear daily, so, too, is the use of the personal service company.
I now realise, having been educated by the evidence, that I have come across such a person myself. He maintains the generator which provides electricity for my cottage in Scotland. It is situated in the hills of east Perthshire, north of Dundee, not far from Glen Clova, from which the noble and learned Lord, Lord Davidson, derives his title. It has no mains electricity, so if we want water, light or heat we must have a generator, and it is quite a big one which I cannot possibly look after myself. He is employed by me to look after it. He told me that he was once employed by a generator servicing company, but left to set up in business on his own. He works as a sole trader, providing his services right through Scotland, from the islands in the north to various places in the south and possibly even to Northumberland. He provides me with bills which, to my initial surprise, show that he trades as a company. I suspect that he finds that a useful protection, because these machines are complicated and he is able to limit his liability and not expose his personal assets should something go wrong. No doubt there are other benefits, too, but I would not dream of telling him what to do. His is a classic case of a personal service company being properly used. It is clear from the evidence that there are many others who adopt the same mechanism. I am glad to see in the response, in paragraph 2.16, that the tax system from which these people benefit is recognised by the Government, who recognise the risks that these people take in carrying on business in this way for themselves. It is a proper recognition of the proper use of the facility.
There is, however, a real problem in sorting out those who are in that category and those who are not; it lies at the centre of the inquiry. I have to say that it is not a new problem. It is one that tort lawyers have been grappling with for decades. The position is that it is crucial to a claim for damages for personal injury, if one claims against somebody one thinks of as an employer, to prove that the individual within the organisation whose act caused an accident was indeed an employee. There are various tests used to sort out who is and who is not in that category. Was the individual truly an employee or was he an independent contractor? Was his contract with the company one of service or was it a contract to provide services? If the latter is the case, the respondent is not liable.
The position lawyers adopt is that this will always be a question of fact and each case is different. I suspect that much the same problem confronts the Revenue when it is trying to police this huge and growing industry. As the response says in paragraph 2.11,
“differing engagements can result in differing tax consequences”.
We were urged to recommend that there should be a more precise definition, but I rather think that it is not possible to go much further than the Revenue has already gone subject to the following point, which I think has already been made, that better guidance could be given in language that is easy to understand so that people who are getting trapped in a situation really understand the difference between employment and self-employment and the exposure to the loss of the benefits that go with employment, which we have built up over so many years.
When one crosses the margin and moves into this grey area, the question arises of whether the Revenue is doing enough to help those who are genuinely not trying to use the intermediary to avoid tax. As the noble Baroness pointed out, the Government have responded positively to our question about the information given on the tax return and the guidance notes that accompany it. That positive response in paragraphs 2.24 and 2.28 is very much to be welcomed. That is the voluntary side of the coin, where people are prepared to come forward and provide the information, if they are told what to do. On the other side are those who are seeking to avoid their liabilities. I must confess that I was less impressed by the response to the question of whether sufficient resources are being allocated to policing non-compliance. The evidence that we heard was not convincing, as we said in our report. The response says a little more about this in paragraphs 2.32 to 2.37. The message seems to be that HMRC will continue to keep the situation under review. What we were looking for was a fresh, renewed effort, not just more of the same thing.
A commentator on our inquiry asked whether it would achieve anything. It is true that in paragraph 2.35 it is said that HMRC revised its approach in 2012. However, the point we were trying to put across is that even this is not good enough. The response to our concern about the contract review service, as to which the evidence told us there was a lack of confidence in its independence from HMRC, is also rather muted. It is not clear from the response that the problem of assuring users of its independence and impartiality has been fully appreciated. Solving that problem is crucial if the success of that service is to be achieved.
As the noble Baroness pointed out, we decided to dedicate a separate chapter of our report to the lower-paid and to the real concern we had that people in this category were being dragged into a system that they did not understand and whose consequences they did not appreciate until it was too late. This is evasion by those responsible for bringing them into the system not just of tax but of the whole structure of the employment law that we have built up for their protection. To some extent, the response is encouraging but one wonders whether reliance on the helpline mentioned in paragraph 2.58 is doing enough to address the problem. More attention needs to be given to publicising its existence, to the language problem and, indeed, to helping people who cannot afford the systems that give access to advice online in this way. It would surely be helpful if the Minister could assure the House that the Government support the committee’s recommendation that the Low Pay Commission, to which the noble Lord, Lord Myners, referred, should examine this whole issue. We set out our recommendation in some detail but paragraph 2.68 of the response does not make it clear that the Treasury has fully grasped the point.
Finally, as to whether this short inquiry in which we were engaged has achieved anything, I think it has served a useful purpose. We have drawn attention to the benefits and, even more, to the abuses and the deficiencies. It is now for the Government to support the benefits, as the response indicates that they intend to do, while at the same time curing the abuses and meeting the challenge of avoidance, as to which the response could have been more positive in endorsing our recommendations.
Lord Higgins (Con)
My Lords, I join those who expressed appreciation for the chairman of our committee, my noble friend Lady Noakes, who was an outstanding chairman and succeeded in producing a report in a very short timescale. That report deals with an extremely complex and difficult subject, as the committee discovered from its inquiry, but my noble friend put forward the problems very clearly in her speech this afternoon.
The response—indeed, the whole process—has been remarkably fast. As my noble friend pointed out, the committee was set up in November. We are only in June but we have already taken evidence, produced our report, received a reply and now had a debate. That is probably a record for any Select Committee report. However, as was made clear by previous speakers, the problem is that the Government’s response is very inadequate indeed and does not solve the problems to which we drew attention.
We are concerned about the Government’s attitude to this matter, as was said in previous speeches. I regret having to draw the following comments to the attention of the House and, I hope, to the Liaison Committee, which is ultimately responsible for these matters. Our report states:
“We were surprised by the lack of co-operation from the Government. The Exchequer Secretary to the Treasury, who has responsibility for tax matters within Her Majesty’s Treasury (HMT), refused to attend an oral evidence session citing that our enquiry was concerned with HMRC’s application of the legislation. He also refused to allow Treasury officials to appear on the same grounds”.
That is a quite absurd explanation of why he did not attend. We could not conceivably have looked into the way in which the tax collection system operated without also considering the legislation. Although the first of those matters is the responsibility of HMRC, the second is clearly the responsibility of the Treasury.
We investigated and raised a number of Treasury issues with other witnesses but were unable to get a reply from the Treasury itself until this evening. I hope that my noble friend Lord Newby will be able to give us a better explanation of why the Treasury was so unco-operative in this matter, because it is of concern to the House. Having been chairman of the Liaison Committee in the other place, I am more familiar with the problems that one has in getting witnesses there and am less clear what the situation is in this House. However, this example raises serious questions about the way in which the Government respond to Select Committees. Like the noble Lord, Lord Myners, I would have found it inconceivable not to respond to a request to appear in front of a committee, and even more inconceivable to refuse to allow Treasury officials to do so. This is a very unsatisfactory situation.
There is no doubt at all that the IR35 issue, which we looked into in considerable depth, is extremely unpopular. Indeed, as has been pointed out, a whole industry has grown up to deal with the problems that it presents for those who are subject to it. While it is clear that people may incorporate a company for good reasons of limited liability and so on, there are also serious tax and national insurance implications. The Office of Tax Simplification suggested that perhaps IR35 should be abolished or at least put on hold. Contrary to what my noble friend on the Liberal Benches said, the committee did not take the view that it should be abolished and went along with the view that it should continue, but clearly a great deal has to be done to improve the present situation.
The Revenue is concerned that if it were abolished there would be mass migration from PAYE to personal service companies, and estimates a loss of revenue of £550 million. As my noble friend Lady Noakes pointed out, however, we have serious doubts about how valid that estimate is. While the Revenue has produced a slightly more sophisticated version in response to our report, it does not add anything significant to the earlier assurances that we were given on this subject.
The other matter that has been pointed out is that it seems clear that the Revenue is not pursuing individual IR35 cases with enormous enthusiasm. One of the other issues discussed was whether the merger of national insurance and income tax should take place. The response suggests, “We might do that eventually but not now”. I realise the complexities of such an operation; we should not hold our breath and suppose that that is suddenly going to take place.
More important is that implementation of the legislation by the Revenue has not been at all satisfactory. I was astonished to find that we have a self-assessment declaration form with a specific question on personal service companies that, it turns out, many people do not answer at all. Nothing seems to have happened as a result. We raised this question and received a response from the Government; it would seem that they are going to try to tighten this up. However, it is their attitude to the non-completion of the questionnaire that gives cause for concern.
The use of personal service companies is very widespread and produces, for those who operate them, considerable benefit to the economy of the country. That is not in dispute but there are, none the less, a number of issues here. Particular concern was expressed about the use of personal service companies in the BBC, for example, and in the public sector in particular. This needs to be dealt with seriously, and while the Government have taken some action, the committee was not satisfied that this problem had been solved—still less in parts of the public sector in which it appears that no action at all has been taken, even though it is the Government’s policy that personal service companies should not be used to mitigate tax and national insurance charges in the public sector. Something more needs to be done about that.
The area that perhaps gave us most cause for concern was the following: it is clear that many personal service companies are set up not at the instigation of the individuals concerned but at the instigation of their clients. This is particularly so for those on low pay, and it seemed to us that there was most appalling ignorance among those people about what they might be losing as a result of their use of personal service companies. Again, this issue is important. The Government’s response on it was somewhat better in terms of the Low Pay Unit and so on. However, again the matter brings out a real difficulty.
I believe that our report has been useful. It has been produced at very considerable speed and raises some difficult issues. In effect, we have turned over a stone and what is underneath is fairly unpleasant. The question that arises is this: we need some sort of comeback. It is fine having a debate; the Minister will reply and so on. If we are going to set up these ad hoc, high-speed committees, and they produce reports that result in unsatisfactory responses, the case for reconstituting the committee—which is familiar with the issues in the first place—in order for it to look at what has happened as a result of its recommendations, is worth while. I hope that the Liaison Committee will consider whether some form of post-report scrutiny can be carried out by the original body.
Baroness Morgan of Huyton (Lab)
My Lords, I, too, served as a member of this committee, and I confess that this was not an area about which I knew a great deal at the start. So I, too, pay tribute to the able chairmanship of the noble Baroness, Lady Noakes, who focused our attention for a short and concentrated period on the key issues and allowed us to understand the serious concerns that noble Lords have heard about and, I hope, to produce some practical recommendations. As other members of the committee have said, these recommendations have, sadly, not been taken seriously so far by the Government. I hope that we will hear more this evening. I also pay tribute to the team who worked with us.
It became clear during the course of our work that there has been a massive explosion in the number of personal service companies over the past 10 years or so, although there is no definitive number of them or an explanation of why this has happened. There is a somewhat fuzzy definition, because the personal service company is not defined in law: rather, its definition is understood and some of what we were trying to pin down was elusive.
There is a whole new industry, a sort of job creation in action, around servicing IR35 and personal service companies. There are companies and advisers on the details of tax: they produce publications, they do marketing, they run member bodies and campaign bodies seeking reform, and so on. There has been an absolute explosion. Beyond the fact that that presumably provides some jobs to some people, it only underlined our concern about the confusion in this area of taxation.
It was disappointing—in fact, incomprehensible—that evidence from HMRC was inconsistent and that HMT refused even to contribute at either ministerial or official level. Their explanations were unconvincing at best, and I hope that we hear a better reason from the Minister about the failure to appear and contribute. There appeared to be a general lack of rigour and focus by HMRC on the functioning and validity of personal service companies or on the overall functioning of IR35. There seemed to be insufficient resources focusing on compliance, and a lack of clarity about whether HMRC was really trying to enforce compliance or whether it was just trying to do a bit of deterrent work around the edges.
In fact, during the investigation we found a decreasing number of compliance investigations, which we felt sent a signal in itself. Bizarrely, as we have heard, HMRC asked questions, for example on the personal tax return SA100, that are not compulsory. We have been told that there is going to be a review of this in the Government’s response. I hope tonight that we feel it will be a worthwhile review that leads to change rather than just a review. Probably many of us have been part of reviews of that sort in the past.
It is clear that in some industries—we had strong evidence from the oil and gas industry in particular—the use of personal service companies is really extensive and is considered useful and understandable. Contracts in those areas were time-limited and specialist. It served those industries well to encourage the use of personal service companies. In other industries and sectors it is fair to say that it was less clear. We struggled to persuade some businesses to give evidence at all, particularly in the financial services and banking sectors, where I think it is fair to say that people wished to stay somewhat in the shadows and not appear before us. We received a lot of generic evidence, for example from the CBI and the LGA, but when we pursued details they immediately told us that they could not represent those details in detail. All they could do was talk in generalities. Their individual members on the whole chose not to appear before us.
What was apparent in the evidence we received was that highly skilled workers—often highly paid—were capable of seeking, paying for and receiving the necessary advice about the advantages and disadvantages of personal service companies. Whatever the shortage of information, lack of clarity and low-level obscurity of the issues surrounding IR35 and the use of personal service companies, it seemed clear through the evidence we received that those at the top end of the income scale were at least in control of their own destinies and made decisions accordingly. In many cases, it was the individuals rather than those hiring them who were insistent that they wanted to operate via personal service companies.
In very sharp contrast, it seemed to us, were those at the other end of the skill and income level. Collectively we were surprised and shocked by the evidence we received that showed the widespread use of personal service companies across a range of poorly paid jobs, including healthcare workers and cleaners but many others too. This was confirmed by HMRC, which said that personal service companies now exist across all income ranges and all key sectors. The warm words used to explain the widespread use of personal service companies, umbrella companies and agencies emphasised the importance to UK plc of the flexible workforce.
Obviously the specifics vary depending on the vehicle used. For individuals using a personal service company, the drawbacks include lack of holiday pay, sick pay, maternity pay and a package of rights. Workplace pensions would not be offered.
Umbrella companies are obviously different, as there is a contract of employment. There are rights and entitlements, but these are usually less than for a conventional employment arrangement. There are also additional dangers for the individual. For example, they can be encouraged to make inflated tax-deductible expenses, for which they would be personally liable if investigated and found to be in error. Gaps in national insurance records and employers’ national insurance being deducted from gross were also cited, together with charging of fees that were automatically debited from the individual.
We also heard about the working of agencies that offered workers through various routes, including personal service companies. Often the agencies worked alongside umbrella companies as well to deliver flexible workers—or, perhaps more accurately, workers whom the employer wanted to be on flexible contracts. It is clear that workers in this low-paid flexible workforce generally had lower entitlements overall than those in permanent employment.
Crucially, we were concerned about the awareness by individuals of their rights and benefits or reduced packages. We also received evidence that the pressure to conform to the non-traditional form of employment was mainly from employment agencies. The Low Incomes Tax Reform Group talked about the specific targeting of migrant workers at the most exploitative end of the market. Workers were aware of what they had signed up to only when they tried to access benefits or exercise rights to which they thought they were entitled. Put simply, many low-paid workers think they are working for the company that runs their place of work. Why would they not?
There is much heralding of the UK’s flexible labour market, especially when compared to other countries in the EU. We know that much of that is true. There are workers at the lower end of the income scale who are perfectly happy to work in a flexible package because it suits them for a time, particularly when connected to family patterns. However, we should not be proud of people being pressured into flexible working and non-traditional employment contracts without realising what is happening to them. The Government must do more to inform and to expose. The abuse of flexible working damages the overall reputation of this broad policy approach.
The Government can decide to include issues in the annual remit of the Low Pay Commission. They might be reluctant to do so, but it seems essential that this whole issue is looked at calmly and comprehensively. Hotlines and publications will not suffice; I for one felt the Government’s response tended to err towards hotlines and publications. I hope tonight that we will hear a commitment to look seriously at taking this to the Low Pay Commission.
In summary, it seemed to us that there were two worlds. The higher paid tend to choose to use personal service companies, know what they are and why they are doing so, and seek the necessary advice and professional help. There are questions for HMRC and wider government and society about whether enough is done to ensure that there is necessarily tax compliance for these people. The other world tends to be low paid and often relatively poorly educated, not aware of the repercussions of their employment status and indeed may be not even aware of that status. They are pushed into non-traditional employment contracts rather than opting for them. Again, government action is needed but of a very different form. These are people who are working hard but, bluntly, not being treated fairly. They need better protection. I hope that we will hear tonight a more positive reply from the Government than we have heard so far.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I welcome the Government’s response to the recommendations of the Select Committee and the opportunity to debate the issue. This was my first Select Committee; I found it a stimulating and interesting experience and one that I more or less understood. I thank my noble friend Lady Noakes for her chairmanship and for making me feel at ease. I welcomed the opportunity to participate and to learn from the more knowledgeable noble Lords on the committee. This has been a privilege. I do not therefore feel it necessary to comment on every aspect of our report and the government response to the recommendations, as there are those here today who are much better qualified to do so. I also thank and pay tribute to Patrick Milner and the others who worked so hard on serving the committee.
With regard to recommendation 2, the merging of income tax and national insurance, I welcome the Government’s acknowledgement that these could be more aligned and accept that employers already have to deal with significant amounts of change in legislation. However, I hope that the Government will return to this in the foreseeable future as a positive step forward.
Recommendations 3 to 6 set out a number of measures that are a mixture of clarification and enforcement surrounding tax returns and IR35. I note that HMRC is planning to undertake a full review of its questions and guidance on personal tax returns and RTI declarations. This move is to be welcomed and we wait eagerly for it to take place in the not too distant future—I hope that we do not have to wait too long. There are a number of recommendations where the Government have indicated that a review will take place, but, as other contributors to this debate have pointed out, the IR35 Forum appears to be either undertaking this review or playing a very significant part in it. As a councillor, I know that whenever a review of a service or an activity is undertaken, it is important that there is a level of independence in that review to maintain public confidence in the outcomes. Like others, I would welcome the Minister’s clarification on this matter, with particular regard to recommendations 8, 9 and 10, on the contract review service, the business entity tests and HMRC.
As others have indicated, the majority of the evidence that the Select Committee received was from those representing or dealing with people who had set up personal service companies and who were very well able to negotiate around the rules and regulations surrounding IR35. However, as has been said, we received evidence of how the legislation affected those on lower incomes. This is the whole thrust of recommendation 11. While the Government feel that HMRC has updated its guidance, and it is the Government’s aim to move us through their digital strategy towards becoming not just a paperless office but a paperless nation, this is not suitable for everyone.
Yesterday I was invited to the launch of the report from St Mungo’s Broadway, an organisation assisting the homeless. One stark fact struck us all: 51% of the homeless cannot read or write. While the subject of this debate is not the homeless, it is patently obvious that those working with the homeless are seeking not only to get them housed but also to get them into work in order for them to be in a financial position to maintain their housing. Many of the lower-paid workers, especially those using umbrella organisations, will have poor literacy and numeracy skills and have no access to the internet. While a digital strategy will suit the majority, it will definitely not suit all. I urge my noble friend the Minister to develop other strategies to reach the poorly paid to ensure that they are aware of the implications for them of a personal service company. I look forward to the publication of the remit of the Low Pay Commission this summer and sincerely hope that the use of personal service and umbrella companies is covered—it will be a wasted opportunity if it is not —and I encourage my noble friend the Minister to give a strong indication that this will be the case.
I was disappointed with the response to recommendation 15. While it is convenient for departments to do their own risk assessments, the response leans towards a certain complacency. Many in this House will have examples of where complacency can lead to poor outcomes. The committee was calling for a review; it is to be regretted that this was not accepted. In order for the outcomes from the committee’s work to be productive, it would be extremely beneficial for such a review to take place.
Finally, with regard to recommendation 16, I am encouraged that there is some movement. However, it is not clear whether this is as a result of the work of the committee or whether it would have taken place anyway. It would be helpful if my noble friend the Minister could clarify this.
While I fear that some of my comments have been negative, I nevertheless welcome the Government’s response to our recommendations. There is much to praise and I am hopeful of moving the issue of IR35 forward in a positive way. However, as with all things, the proof of the pudding will be in the eating.
Lord Davidson of Glen Clova (Lab)
My Lords, we on this side welcome the report as a real contribution to the debate about the UK’s tax system and how the objectives of fairness and encouragement of enterprise can be better achieved. I congratulate the noble Baroness, Lady Noakes—
Baroness Noakes
I thank the noble Lord for giving way. I think that my noble friend Lord Stewartby was hoping to speak before the Benches opposite.
Lord Davidson of Glen Clova
In that case, I will sit down and oblige. With her usual courtesy and brisk efficiency, the noble Baroness runs this House as well as she runs her committee.
Lord Stewartby (Con)
My Lords, I do not know whether it was my timing that went wrong, but it enables me to take a slightly more detached view about proceedings over the past couple of hours. I have crossed out most of my speech anyway, so that is no problem.
What is left is a whole area of vagueness. There is very little in the way of action taken. You get the feeling that somehow people thought that, if they let things happen, that would be all right. However, a little while ago I checked through the nature of this issue and it raised a question in my mind as to what the people who are running the bodies think they are trying to do. A lady professor from Oxford remarked, “If you don’t know what you’re trying to do, you are not necessarily going to be very successful”. It is that sort of attitude that I felt had spread through a lot of our deliberations.
We all know that the arrangements for the way things work mean that it is quite difficult sometimes to get straightforward answers to straightforward questions, but we took that to some sort of an extreme. Whenever these issues came up, I asked myself what the authorities were trying to achieve. Did they want to have more of these companies or fewer, or did they not mind either way? This is a culture that spreads through a lot of the areas that we have been discussing this evening. I think that the whole show lacks not only direction but any sort of impetus. I do not think that it is possible just from observing what happened in the cases that we looked at to know whether the authorities actually have any objectives of their own. Do they stop and think whether they are doing what a reasonable person might do? I did not get very far ahead with my little investigations on that front, but I do not think that you will get a well organised and efficient body if its objectives are so vague. How would we know whether we had done a good job if we did not know what we were meant to be doing? It sounds rather asinine because it is such a simple issue.
If you take it in the round, covering all the areas that we have been looking at, you would find quite a lot of comments about what people did but not why they did it, or whether they were pleased with having done it, or however you would like to express it. I would ask that my late contribution to this discussion should not merely be filed away in a corner, because big changes are needed in the structure of management in a lot of the areas that we have been talking about. This is the wrong end of the debate to set off with a lot of new ideas—they are certainly not personal to me—but I hope that perhaps I have spent a bit of time trying to judge what would happen in an ideal world. It would not be quite like the world that we have in this area and there is a huge opportunity for improvement. It is necessary because a lot of what we were looking at is almost incomprehensible unless you are a specialist or expert in the field. I leave with the committee the thought that we could be a little less inert when we tackle these areas and I hope that that will come without too much delay.
Lord Davidson of Glen Clova
My Lords, I will try again. I repeat my welcome for the report as a real contribution to the debate. For the second time this evening, I congratulate the noble Baroness, Lady Noakes, on her chairing of the committee, and I congratulate the committee on producing this timely and useful report. Immediately, I should say that on this side we support the committee’s recommendations. Our welcome for the report is tempered by much of the response from the Government. I join the noble Baroness, Lady Noakes, in restraining my enthusiasm for the Government’s response.
Most commentators accepted in 2000 that curtailing the use of personal service companies to disguise employment was a proper target and that IR35 was a reasonable first attempt to deal with the problem. It is plain that the legislation imposed on contractors, as the committee observes, the need to expend a great deal of time and effort, as well as the costs of accounting advice. In a business environment that is much changed since 2000, it is essential to understand the efficacy of IR35. I am glad I stopped and was able to hear the contribution of the noble Lord, Lord Stewartby, because he made it very clear that the question here is about what one is trying to achieve. In 2000, one knew what one was trying to achieve: to prevent disguised employment. But what is the position now? Is it simply about deterring something that is said to be bad but none the less seems to be expanding quite dramatically? It would be very interesting to hear the Minister in due course provide the clarity that the noble Lord, Lord Stewartby, requested.
The core justification for IR35 is recognised, correctly, by the committee as the Exchequer protection resulting from the deterrent effect of the legislation, and one might expect a reasonably articulate view from the Government after some 14 years of operation of this apparent deterrent effect. We are told that the calculated deterrent effect amounts to a figure of some £520 million. The committee’s concern about this issue, and the Government’s response, are instructive. Where the committee seeks “more robust work” on whether the justification for the deterrent is convincing, the response is that the Government are “confident” that their assessment is “robust”—their favourite word—while accepting at the same time that their methodology is based on uncertain assumptions. That is perhaps not reassuring. The government answer that this is “inherently difficult to estimate” is apparently based on “behavioural assumptions”. We are told that these assumptions are,
“consistent with intelligence from operational experts”.
I hear the words and of course understand them, but this is hardly a model of transparency from the Government.
One might also ask what the cost is of the current system to taxpayers—a figure not dependent on “behavioural assumptions”. Does the Minister have any estimate of taxpayer costs: the fees paid to accountants, tax consultants and so on? The size of the IR35 industry, as my noble friend Lady Morgan observes, must be fairly large—that is a cost imposed on taxpayers.
If the Exchequer protection guess is not as robust as asserted, what would the Government do? The Government’s confidence in the figure is not so impressive when one notes that they were not prepared to co-operate with the committee. The plea that “application of legislation” was in issue could not sensibly have prevented a detailed explanation of the core justification for IR35. As the noble Lord, Lord Higgins, observed, the explanation from the Exchequer Secretary is absurd. That answer could, in a sense, be applied by every Minister, who could say, “Oh well, it’s to do with the implications of how one operates legislation”. It would make answering to Parliament perhaps not a very powerful remedy in our democracy.
Presumably the Minister will take a bolder—possibly more robust—stance and explain the Exchequer protection figure with greater clarity than the government response offers. I imagine that the Minister, who is a sensible person, will take on board the observations of the noble Lord, Lord Myners, who describes the Exchequer Secretary’s conduct in this matter as “unacceptable” behaviour. The noble and learned Lord, Lord Hope of Craighead, identified the need for facts in this area. I trust that the Minister will agree. The noble Lord, Lord Higgins, described the Exchequer Secretary’s behaviour as “inconceivable” by his lights. These are quite strong observations. I will not extend the Minister’s pain any further—I am sure he listened to those observations.
When IR35 was introduced, the concern was about the use of personal service companies to disguise—to conceal—what was truly employment and to enable an individual to obtain advantageous, but presumably improper, tax benefits. The aim of IR35 was to produce fairness between employees and contractors. Now it has been seen that the use of personal service companies has expanded considerably, which, on one view, possibly contraindicates the effective deterrence by IR35, although it might be that more behavioural assumptions need to be considered.
More seriously, the committee identifies the use of umbrella companies to employ the lower paid—not through the choice of those workers. As the noble and learned Lord, Lord Hope of Craighead, observed, the potential for the exploitation of such individuals, who often are not fully aware of their rights, is clear. An environment where lower-paid workers are charged fees, confused over their employment rights and encouraged to charge expenses improperly, as my noble friend Lady Morgan pointed out, suggests a need for both strong enforcement and a high level of education. The noble Baroness, Lady Bakewell, draws attention, correctly, to the way in which communication needs to be dealt with sensibly when one seeks to bring information to the lower-paid. I assume the Government will agree with that as a generality, but could the Minister give greater clarity? For example, the government response states at paragraph 2.70 that,
“HMRC is aware that some”—
umbrella companies—“are non-compliant”. Might the House be told what steps have been taken to deal with these companies?
The committee notes the decrease in enforcement: the reduction in the number of investigations by about 70% over a decade. Is this decline a result of the success of the policy, a lack of resources or a change in HMRC priorities? The recent increase in staff, to which the Government allude, may suggest that the answer is not the success of the policy, but an answer would be helpful in understanding the Government’s view of the operation of the legislation.
Part of the thinking behind IR35 back in 2000 was that it might encourage direct employment. Do the Government have a view as to whether this has in fact been a consequence of the legislation? The move to outsourcing and a desire on the part of some employers to avoid the costs of employment legislation may suggest otherwise, but some information on this aspect would be welcome.
From another angle, IR35 was intended to catch the limited number of disguised-employment personal service companies but not to place obstacles in the way of genuine start-up companies. However, an emerging concern has been that start-up companies, perhaps with only one or two clients, without physical premises and without employees, can present as a disguised-employment company—whereas the reality is that it is a genuine start-up that may in fact develop into a business success. In due course, inevitably, some start-up companies will fail and some will succeed, but in the precarious initial stages of these companies, HMRC’s investigations into possible disguised employment can be immensely disruptive—a disruption that their larger, more established, competitors would not face. Is it possible for the Government to say whether there is evidence to bear out this concern and, if the concern is sound, whether any steps have been taken to reduce such a burden on these entrepreneurial enterprises?
Of course, greater and more visible legal clarity would reduce the confusion that sometimes exists on this subject. The risk criteria that HMRC uses in guiding its activities in this area could do with being made rather clearer so that taxpayers might understand where their activities need to be properly vouched. In the past, one understands that doctors, teachers and health professionals all appear to have featured as being within the risk sectors. In the interests of promoting greater clarity, is it possible for the Minister to inform the House of how these risk sectors are identified?
On what is perhaps a more parochial point, at a time when the prospect of different income tax regimes between Scotland and the rest of the United Kingdom is becoming a nearer reality thanks to the Scotland Act 2012, have the Government considered how personal service companies may be used to arbitrage tax rates within the UK? For example, have the current Scottish Government sought to discuss this potentially difficult area with Her Majesty’s Government?
Finally, I turn to the use of personal service companies in the public sector. We share the concerns expressed by the noble Lord, Lord Palmer of Childs Hill. The Government response to one view in this area raises more questions than it answers. As I read it, the Government are committed not only to tackling tax evasion, as all Governments must be, they also recognise the inappropriateness of public sector appointees using personal service companies. The Treasury review of these persons’ tax arrangements issued a recommendation that such persons should normally be on the payroll. Is it possible to state what the effect of the recommendation has been on such appointees’ tax arrangements? Broad-brush answers will do. Further, at paragraph 2.86 of the response, we note that so-called satisfactory assurances were received from 1,940 contractors within departments. Can the Minister indicate the broad nature of those assurances and why they were regarded as satisfactory?
This has been a useful debate in shining a spotlight on this area, which, as all speakers have said, is both difficult and important. The balance between encouraging enterprise and defending the Exchequer’s revenue should properly be kept under continuing review. As the noble Baroness, Lady Noakes, observed, this is unfinished business, and we agree.
Lord Newby (LD)
My Lords, I thank all noble Lords who have taken part in the debate. It is correct to say that, with the exception of the noble and learned Lord on the Opposition Front Bench, all noble Lords who have spoken served on the committee, and therefore I can doubly thank them for the work they undertook on a very short timescale. As the noble Lord, Lord Myners, pointed out, this is an extremely complicated area, while my noble friend Lord Higgins made observations on the procedure in terms of the pace of the committee’s work. The Government response, however inadequate some noble Lords feel it to be, and the speed with which we have been able to hold this debate are a good example of your Lordships’ House scrutinising how we attempt to implement public policy, and I hope that it will be followed more frequently in the future.
I hope that I am able to reassure the House that the Treasury and HMRC take this report and the issues it raises extremely seriously. There is one area where I am not going to be able to satisfy noble Lords, which is their understandable irritation at the non-attendance of a Treasury Minister. The experience of your Lordships’ House of Treasury involvement in the work of its Select Committees over a number of years has been variable. When I served on the Joint Committee on the draft Financial Services Bill, not only did the Chancellor of the Exchequer of the day refuse to turn up, he refused to allow his officials to turn up and he refused to allow them to send a written response to our questions on the administrative workings of tax on the basis that it would undermine the sovereignty of the Commons in that area. We thought that that was very unsatisfactory at the time. I can assure the House that I drew this committee’s views to the attention of colleagues in the Treasury before the debate and that I will do so again.
However, I think that both the Treasury and HMRC take the work of the committee very seriously and they are acting in response to that work. In some cases the committee has looked at and made recommendations in areas where work was already under way, but some of the recommendations made by the committee are being taken forward where work was not under way, specifically in relation to the questions around personal service companies’ self-assessment returns and employers’ returns. As a result of the work of the committee, these are now being reviewed with stakeholders with a view to making any necessary changes as soon as practicable. That is a concrete example of the influence of the committee in getting real change.
The committee did not confine itself just to the use of personal service companies, but looked more widely into the engagement of workers in today’s labour market, and that was reflected in a number of speeches in the debate. The UK has one of the most flexible labour markets in the world and we recognise that that is one of the reasons why our economy has been more resilient and has recovered faster than many other western economies. We recognise that personal service companies are a key feature of this flexible and dynamic labour market and will continue to contribute to its growth. Regrettably, however, as noble Lords have made clear, there are those who see such arrangements as an opportunity to avoid paying their fair share and there is abuse of the system, not least among those on low pay who are often unaware of the situation in which they find themselves. Clearly, that is not right. The Government have provided a clear mandate to HMRC to ensure that everyone pays the right amount of tax. One of our biggest challenges is effectively to tackle avoidance while encouraging genuine enterprise. We have introduced a plethora of measures to encourage enterprise, but at the same time we have legislated to stop avoidance and help HMRC bring money in more quickly. Since 2010, we have introduced 42 changes to tax law in order to close loopholes and we have invested an extra £1 billion in the area of preventing and deterring tax avoidance, thus bringing in billions of pounds for the Exchequer.
IR35 is the central theme of the committee’s report. It is one of the best known, least popular and least well understood pieces of anti-avoidance legislation. HMRC has been working hard to change this, and I shall come on to it later. However, the real starting point of the debate is the analysis carried out by HMRC on the estimates, which showed that more than half a billion pounds of Exchequer receipts would be at risk were IR35 to be abolished. The noble Baroness, Lady Noakes, said that she was sceptical about the figure, as undoubtedly was the noble and learned Lord, Lord Davidson of Glen Clova. I am not sure whether my noble friend Lord Palmer dismisses the figure altogether, because he is not normally a man who likes to throw away 550 million quid. The assessment made by HMRC is robust—to use the word of the noble and learned Lord, Lord Davidson—but inevitably there are challenges around estimating the deterrent effects of anything. While we can quibble over whether it should be £550 million or slightly more or slightly less, the bald point is that I do not think anyone who looks at this would doubt the broad conclusion that hundreds of millions of pounds of revenue depends on keeping IR35 in place, and that is why we are going to do so. All our past experience has shown a number of UK incorporations to be very sensitive to available tax incentives. Therefore, we believe that there continues to be a compelling need for this legislation.
In 2011, the Office of Tax Simplification recommended that HMRC improve the administration of IR35. Since then, HMRC has been working with stakeholders, including the IR35 forum, to help people understand the legislation, to reduce the burden on compliant businesses and to address many of the concerns that were subsequently raised by the committee. The committee concluded that the guidance issued on how the system works was “far from satisfactory”. A comprehensive review of the guidance has been undertaken and new guidance was published one week ago following widespread consultation. We are confident that it will be an improvement.
One area in which HMRC has been making substantial changes is how it conducts IR35 inquiries. Many noble Lords touched on this area. I think there has been a certain amount of confusion about the numbers. When it was first introduced, the number of IR35 reviews was extremely high: more than 1,000 in 2002. It then fell dramatically so that in the final year of the previous Government there were 12. That number has now increased to 256, which shows a considerable increase in effort and commitment to ensure that this is not a voluntary area of activity. As we pointed out in our response to the committee, three new compliance teams were created in April 2012, and a fourth team has been put in place over the past year to further enhance HMRC’s ability to respond to IR35 risk.
Is this enough? How do you decide on the very many competing claims for the use of HMRC compliance staff? The answer is that HMRC has to do a risk assessment across the whole range of its activities, which attempts to work out how best to deploy the resources at its disposal. In this area HMRC has looked afresh at the way in which it assesses risk to enable it better to target those who deliberately flout the rules. The number of people involved and the number of cases that have been taken reflect the fact that it has decided to give a greater priority to this issue.
However, HMRC recognises that there is more to be done. In partnership with the forum, it is currently reviewing how it administers IR35 in the round, including the compliance strategy. HMRC and the forum will publish a joint report, with recommendations, in the autumn. A number of noble Lords referred to the forum. Its role has developed since its inception so that its external members now feel that they are driving forward its agenda. It is looking at the contract review service, about which there have been a number of complaints, and the business entity tests, which are being reviewed and changed, very much with the full participation of the forum.
As noble Lords have said, when it was introduced IR35 legislation was looking at people on relatively high salaries and in the professions. Clearly, there has been a big change over the past 15 years in that a very large number of low-paid workers have been brought within the net of personal service companies. Some of these low-paid workers are being forced or enticed into structures, including personal service companies or umbrella companies, and they are clearly in many cases unaware of the full implications of those arrangements.
In this year’s Finance Bill, we tackled a particular model that was being used to engage workers as self-employed when in reality they should have been employees. I hope that demonstrates that we take this area extremely seriously. As part of our concern about how low-paid workers are treated, we are also committed to increasing compliance with the national minimum wage. HMRC actively targets employers who flout their responsibilities and investigates complaints against them. Just last month, a number of those who failed to pay the national minimum wage were named by HMRC for their failure to comply. We have quadrupled the maximum penalty payable by employers who break the law in respect of the minimum wage to £20,000 and we will be legislating in this Session to increase the maximum penalty per underpaid worker to £20,000. So we are doing quite a lot in that area.
However, we recognise that there are a number of problems in ensuring that low-paid workers are aware of what is happening to them and of their rights. At one level, this is a question of joined-up government. Obviously, HMRC is not the only arm of government dealing with people in this situation. HMRC is working with the Gangmasters Licensing Authority, the Home Office and BIS to address the issue of low-paid workers’ rights, in particular in relation to their employment status, how they are engaged and how they are paid. HMRC has a pay and work rights helpline, which provides individuals with a confidential route to discuss these issues. We have updated the guidance on employment status and HMRC’s employment status indicator tool, both of which are accessible online, along with two explanatory factsheets. HMRC is now working more closely with BIS on how to improve the dissemination of the relevant guidance.
I was very taken by the comments of my noble friend Lady Bakewell about people who are really at the bottom end of the income and opportunity ladder, who are often illiterate. Clearly, how one reaches people in that situation is extremely complex and difficult—they are certainly not going to use the employment status indicator tool, whatever they do. We recognise the need to put further effort into dealing with that issue.
A number of noble Lords expressed concern that the Government were not taking enough action in respect of the public sector and off-payroll workers. I think that is rather unfair. The Chief Secretary made it clear to all departments that they needed to limit the length of time any off-payroll worker was employed to six months or less. There has been a review of how this has operated, which has led to action being taken against two departments, the Department for Transport and Defra, which failed to bring senior executives on to the payroll. Defra was fined £102,000 and the Department for Transport £398,000. Real action is being taken and I suspect that the Permanent Secretaries of those departments, as accounting officers, do not like the fact that they are being fined by the Treasury for not doing what they are supposed to be doing, and that this will prove to be a good corrective.
Questions were asked about local government and the devolved Administrations. With regard to local government, the Secretary of State for Communities and Local Government wrote to the LGA to highlight the issue and has published guidance on it while the Chief Secretary to the Treasury has written to the devolved Administrations in similar terms, so we are taking serious action to ensure that the public sector acts to stop some of the abuses at the top end. With regard to what happens further down the scale, should the public sector have a very strong presumption against using personal service companies for people who earn less than the current reviewable amount of £220 a day?
Lord Higgins
Where is the money to pay the fine coming from? Is this simply a transfer from one part of the Government to another? Is it an appropriate sanction? Should someone not be fired?
Lord Newby
Well, it is a transfer of money from one part of the Government to another, but this is hardly surprising since it is one part of the Government that has transgressed a rule set by another part of the Government. As for firing senior civil servants for not having kept this properly under review, I am rather tempted by the suggestion—but if it were a principle, we would rapidly find that there was a depletion of civil servants, not specifically in this area but from a whole raft of other areas where there may have been the odd transgression that was not stamped down on quickly enough.
The noble Lord, Lord Davidson, asked an extremely interesting question about the Scottish situation and the relationship between the UK and Scotland, and asked whether there had been discussions with the Scottish Administration on this issue. I am not absolutely sure but I am almost sure; I suspect that there have not been.
This debate has confirmed that personal service companies play a vital role in the UK economy. However, there are those who seek to exploit such arrangements to gain a tax advantage. Because of this, in our view there is still a clear need for IR35. However, there is still more to be done in improving its administration, and HMRC, in partnership with the IR35 Forum, is working very hard on this. We welcome the committee’s recommendations, which will help with this very important work.
Lord Palmer of Childs Hill
Before the Minister sits down, I wish to take up the point about the £500 million saving, which the Minister said I had little regard for. My regard is that it is mythical—there is no proof of it. If HMRC has proof of this, will it bring it forward? The problem with a deterrent is that it is hard to tell what you have deterred and how much you have gained. If there are people who should have been in IR35 and were then brought into it, specific details would be available of the money that had been recovered. I say to my noble friend the Minister that I have no confidence in the figure of £500 million; if I had, I would not have raised the matter.
Lord Newby
My Lords, I think the point is: what would happen if the restraint were lifted? Would individuals pay more or less tax? HMRC has looked at the behaviour of individuals in a whole raft of other areas where it has a lot of experience, and has drawn what it believes to be reasonable conclusions—which I have looked at and which seem reasonable to me. By definition, though, you cannot absolutely pinpoint how much evasion of tax you have deterred; that is impossible to do with any degree of certainty.
Baroness Noakes
My Lords, I thank all noble Lords who have taken part in this debate today, including the two noble Lords on the respective Front Benches who did not have the privilege of taking part in the committee. My committee members did not disappoint me today; I expected the debate to be of high quality, and indeed it was. I repeat my thanks to them for their work.
I would like to pick up two points in response to what has been said today. The first is in relation to the Treasury’s co-operation with the committee. If this practice were allowed to become more widespread, it would be a “get out of jail card” for all Ministers whenever they did not fancy appearing before a Select Committee because they did not much like the subject matter. The Minister referred to the Economic Affairs Sub-Committee on the Finance Bill in the era of Mr Gordon Brown. It is not the practice of Treasury officials to shun the committee now, and we would have been happy had Treasury officials come to us. This remains an egregious example of discourtesy to the House in general, and I feel it necessary to record that again.
My second point is about the lower paid. I had not expected the personal service committee to get into the area of the lower paid; I thought that this was about IT contractors and people who could look after themselves, and was just about tax avoidance. I think that we were all shocked by the evidence we heard about the way in which corporate vehicles were being used for lower-paid workers, many of whom did not have language skills, possibly had other kinds of learning problems, and did not understand what they were getting involved in. I do not think that the Government have really understood the nature of the concerns here. Their response is a very reactive one: “We’ll have it online”, or, “We’ll have a telephone helpline and you can come and get it”. That response does not address those needs and I do not think that they recognised them, although the Minister himself appeared to understand them more. I would like to think that this area would be examined again.
I also note that our recommendation was to get the Low Pay Commission to look at this area. We took the advice of the noble Lord, Lord Myners, who I am glad to see in his place again. He is a former chairman of that commission and he assured us that this was exactly the kind of work that could be done under its auspices. The Minister gave us no response to that today, so we just have the very unsatisfactory answer that lies in the Government’s official response.
Personal service companies seem to be here to stay. So, therefore, are many of the issues that were raised in our report, from the big questions raised by my noble friend Lord Stewartby such as, “What is it all for?”, to, “Does this calculation of £500 million or more really stack up today?”, and, “Is all that worth the burdens that we are putting on what are effectively small businesses in our society?”. These issues will not go away. I am not sure that the suggestion that we reconstitute the committee would find favour with all my fellow committee members, but I am sure that some mechanism will be found in future to return to these issues.
EU: Youth Unemployment (EUC Report)
(10 years, 6 months ago)
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Baroness O'Cathain
To move that this House takes note of the Report of the European Union Committee on Youth Unemployment in the EU: A Scarred Generation? (12th Report, Session 2013-14, HL Paper 164).
Baroness O'Cathain (Con)
My Lords, I am truly delighted to have the opportunity to move the Motion for debate so promptly after the publication of our report on 10 April this year. The report, Youth Unemployment in the EU: A Scarred Generation?, is the product of an eight-month inquiry focused on the youth unemployment situation from an EU perspective. The members of the committee have been passionate about the subject throughout, and were very keen to bring our reflections to the attention of the House as soon as possible. In that vein, I should like to start by thanking them for all their self-imposed hard work. We had a very demanding timetable to meet the production date.
I thank the range of interesting witnesses who contributed through written and oral evidence. Our confidence in our conclusions was bolstered by the fact that we had heard from a truly wide range of witnesses including pan-European—or rather pan-EU—businesses such as McDonald’s and Marks & Spencer; a wide range of international think tanks; EU and UK trade unions; and charities that work directly with young people, such as the Prince’s Trust. Special thanks are due to the young people whose contribution was invaluable in witness sessions in the House, on visits to Birmingham and Liverpool, and indeed in Brussels.
Producing a report such as this would never have been possible without the sterling work of our clerk, Nicole Mason; our policy analyst, Paul Dowling; and the committee assistant, Deborah Bonfante. All of them are endlessly patient and so very helpful. It was an absolute joy to work with them. I am sure each member of the committee agrees with me on this. Our selection of John Bell, our specialist adviser, was inspired. We are immensely grateful to him for helping us navigate the wealth of evidence and other information at our disposal.
It is a shame now that I feel I have to introduce a sour note. The government response was due on Tuesday 10 June. It was received yesterday at 11.05 am, on Monday, after a weekend when members spent many hours crafting their speeches for this evening. This is unacceptable and was described as such, and worse, by members at our meeting yesterday afternoon. Worse than that, the response has all the appearance of being a very shoddy piece of work. The authors of the response could not even copy the title of the report. The heading reads House of Lords European Union Committee Report on Youth Employment in—in where? Perhaps they were unaware that we were just addressing youth unemployment in the EU. The response does not address the conclusions in our report in many places. It is badly drafted. There is no covering letter. And, to cap it all, there are no page numbers. The layout is certainly user-unfriendly, and cut-and-paste was probably the order of the day.
I was very interested to come late into the previous debate and hear almost the same sort of comments about the Government’s response to that committee’s report. What has happened? Let us get a grip. I am not having a go at my noble friend the Minister, and we will of course formally consider the response and then write to my noble friend imminently.
Our reasons for deciding to conduct an inquiry on this topic are perhaps self-evident. We are all aware of the shocking situation of youth unemployment in the EU. The title Youth Unemployment in the EU: A Scarred Generation? might sound somewhat dramatic. However, the more we learnt about the situation and its effect on millions of young people, the more we realised that this is a question not just of jobs but of the potentially devastating impact on many, many young people, some of whom could easily be scarred for life. What damage does it do to the self-esteem, self-confidence and self-reliance of our own young people?
In March 2014, youth unemployment across the 28 EU member states stood at 22.8%, more than double the overall unemployment rate of 10.5%. This is a very slight improvement on the rate of 23.5% a year earlier. The rate of youth unemployment is also reducing in the UK. The figure in April 2014 was 18.5%, down 1.3 percentage points from the previous quarter and down two percentage points from the previous year. This level of unemployment, however, is still considerably higher than the level in the first quarter of 2008, of 14%.
It is true, and we should be very thankful for it, that the levels of youth employment are on the rise. We hope that the shock to the system that we have experienced, and indeed are experiencing, will not deflect our attention from the very serious situation that still exists. Complacency has no place in this subject, and we shall continue to look for solutions to the problem. Time and again we hear stories of the impact these levels of unemployment are having on young people.
I was particularly moved by the right reverend Prelate the Bishop of Durham’s observation of the impact of youth unemployment in his excellent maiden speech on 10 June. He spoke movingly about the young people in schools and colleges who are concerned that they will never find fulfilling work in an area in which they are interested. He thoughtfully acknowledged that some have lost all hope and aspiration long before the end of school, let alone college and university, having been told that their value is in work and economic contribution rather than being “great human beings”.
I agree wholeheartedly with the right reverend Prelate. To tackle the issue of unemployment, we need to think beyond just finding young people jobs. The conversations I had with the young people we visited in Liverpool and Birmingham brought this fact home to me. Many of these young people faced complex personal barriers to work—for example, insecure accommodation, caring commitments and criminal records. Through talking to them, I realised the importance of an approach that enables them to build stable and fulfilled lives before being able to find meaningful employment.
Therefore, I wish to preface my further commentary on various other factors affecting unemployment and the solutions to it with my belief that youth unemployment cannot be properly addressed in the absence of a holistic approach. The aim of our report was to take this knowledge of the very real impact of unemployment right across the EU and consider what the role of the EU should be and how European funds should be used.
To be fair, the issue of youth unemployment has long been central to the EU strategy. It has been targeted through the European Social Fund, which was set up in 1957. In recent years, the European Commission has shown a renewed focus on addressing youth unemployment through various measures. It has increased funding so that, between 2007 and 2013, 68% of the European Social Fund went toward such projects. Additional funds have been allocated to deal with the problem. The Youth Employment Initiative comes to €6 billion in total, with a pledge from member states to add a further €2 billion. This money is intended to go to regions with more than 25% unemployment. In the UK there are five such regions: inner London, Merseyside, south-west Scotland, Tees Valley and Durham, and the West Midlands. Not all member states were eligible for such funds because not all member states have these areas of 25% youth unemployment. Another measure is the youth employment package, which was proposed in 2012, one of whose significant elements was the Youth Guarantee.
Despite the funds at EU level, the amount of money spent at national level by each member state dwarfs the amount of available EU funding. We concluded that it was right that the responsibility for dealing with youth unemployment should rest primarily with member states. There are, however, clear benefits from the EU co-ordinating the member states’ responses, sharing good practice and using EU funds for specific tasks that complement action at national level.
I turn now to the issue of the Youth Guarantee in more detail. It is an example of the EU spreading good practice. We must never forget that nobody—no Government, no institution, no international institution —has a monopoly on good ideas. All member states should and must learn from others and avoid a “not invented here” reaction. Surely it is part of the internal single market to have this relationship. The Youth Guarantee proposal, which the committee supports, is an example of the EU spreading good practice. In essence, it is an undertaking that all young people aged under 25 should receive a good-quality, concrete offer of employment, continued education, apprenticeship or training within four months of leaving education or becoming unemployed. It was pioneered in the Nordic countries. One witness said that the operation of a guarantee scheme was likely to be the reason for the very low rate of long-term unemployment in these countries.
The Youth Guarantee could, and probably would, look different in every country, but the key benefits are: immediate support, not waiting to offer help until young people have been lingering in unemployment for some time; personalised support, finding the outcome that is right for the young person, which could be an internship, employment, personal mentoring or something else; and support for all unemployed young people.
The concept of the Youth Guarantee is different from the current system where the help is not immediate. The Minister said that because most young people on benefits come off them after six months, “It would be inappropriate to put support in earlier”. We found this rationale problematic as it does not account for those young people who have found unsuitable or temporary employment.
Implementing a Youth Guarantee scheme would be an opportunity for the UK to use EU funds to try something new which we know has worked in other member states. I repeat that we were disappointed by the Government’s lack of engagement with the EU’s recommendation that member states should implement a Youth Guarantee. Of the eligible member states, the UK was the last to submit a report outlining whether and how it would use a youth guarantee scheme. Our Government submitted it on 3 March, more than two months after the 21 December deadline. That does not show a lot of enthusiasm or interest.
In the report, the Government confirmed that they would not implement a Youth Guarantee scheme and used the report to describe how current initiatives served the same purpose as would a Youth Guarantee. We were disappointed by the Government’s decision, which we think would complement efforts to tackle youth unemployment at national level. We recommended that the Government reconsider this decision and use the funds to pilot a Youth Guarantee scheme in the five areas eligible for the extra funding. A Youth Guarantee scheme would tackle unemployment at an early stage before the feeling of being worthless and the loss of aspiration kick in.
A Youth Guarantee scheme is focused on the specific needs of the individual and therefore would complement UK measures, such as the Youth Contract with its focus on changing the labour market, making it easier for businesses to take on young people though providing wage incentives and support for those who are looking for work experience. We welcomed the September guarantee for 16 and 17 year-olds and the Youth Contract’s support for getting the most disadvantaged into a job or training or on to an apprenticeship scheme. Similar support needs to be offered to all young people struggling to find employment.
Throughout our evidence, we heard that one of the unusual aspects of this youth unemployment crisis is that it is affecting a wide range of young people, not just the most disadvantaged. Will the Minister say what the take-up of the Youth Contract has been? Has it improved? The initial figures show that between April 2012 and November 2013 only 10,030 wage incentives were paid to employers who had taken on an unemployed person, which is considerably less than the 160,000 available.
Inevitably, a great deal of the evidence we received was UK-specific, particularly the evidence we received from representatives of local bodies and from the noble Lord, Lord Heseltine, who worked with Birmingham City Council on its growth strategy in the aftermath of the publication of his government-commissioned report, No Stone Unturned: In Pursuit of Growth. We received much evidence that the best way of connecting with harder-to-reach young people is by using local specialised charities and other organisations. We were most impressed by organisations in Birmingham and Liverpool. It is easier for young people to connect with these grass-roots specialist organisations. Local authorities are in the best position to identify them. We welcomed the Government’s move toward greater decentralisation of funding and recommended that local enterprise partnerships, in partnership with local authorities, should be enabled to oversee the management and delivery of programmes. This would enable a move away from large-scale contracts towards the use of smaller service providers with knowledge of and, commitment to, the local area—in effect, localism.
In a Damascene moment, one that no committee member will forget, a member of the committee said, “We are investigating, discussing and taking evidence on youth unemployment, so we should take evidence from young people”. That was so true. We rapidly rearranged timetables, enabling the committee to schedule two visits, one to Birmingham and the other to Liverpool. Thanks to the great support of our committee staff and specialist adviser we set about remedying this problem. The young people were illuminating. There were open, no-holds-barred sessions. When the young people were asked about their attitudes towards various government initiatives, some of the language was unprintable and certainly unparliamentary. One youth witness commented that some of the policies in the area of youth unemployment would never have been put forward by a young person. The need to include young people in decision-making is another argument for localisation. It is easier for young people to be involved with local bodies, as they probably know some of the people involved. Young people prefer to stay in their own locality, where they have their friends as support groups.
There is certainly room for improvement in involving young people in decision-making. Local enterprise partnerships currently do not have to consult young people when making decisions about their youth unemployment strategy. We suggest that local enterprise partnerships should, as a matter of course, have to consult and involve youth groups about policies that affect them.
The final issue I want to touch on is skills mismatch. There are currently about 2 million unfilled vacancies in the EU. The digital skills area is a particular concern as nations in south-east Asia, India and many other areas appear to be far ahead. Skills mismatch is a particular problem in the UK. In its 2013 country-specific recommendations, the European Commission said that, despite progress in recent years, a significant number of young people did not have the necessary skills to compete successfully in the labour market. The Commission found that there was an oversupply of low-skilled workers in the UK and that the unemployment rate of low-skilled 15 to 25 year-olds in the UK was 37.2% in 2013, which was significantly above the EU average. We recommended that the European Social Fund be used to bolster skills training in this area and to ensure that young people get careers advice that matches their skills to the job market.
As an aside, I welcome the new House of Lords ad hoc Digital Skills Committee. I have to admit that I put it forward, and I am on the committee. We have our first meeting tomorrow, and I am truly looking forward to it. It will be chaired by the noble Baroness, Lady Morgan. If noble Lords were in their place during her contribution to the previous debate, they will know how fortunate we are. Digital skills is one area in which youth unemployment could be on the way to being solved.
I know I have stretched the House’s patience, but I thank noble Lords for being patient. I believe that there are four key changes which could ameliorate the current dreadful situation for the youth of the EU. There should be more of a focus on consulting and involving young people in developing youth unemployment policy. The Government should learn from best practice abroad and bring forward new ideas and initiatives, such as the Youth Guarantee. There should be a localised approach to devising and managing schemes that aim to address youth unemployment, which should involve local businesses, charities and specialist organisations. Finally, there should be better matching of skills to qualifications. I beg to move.
Lord Haskel (Lab)
First, I, too, express my thanks to our witnesses for giving us the benefit of their experience; to our special adviser, John Bell, for his understanding and knowledge; and to our clerks for their hard work and diligence. They all made this work possible. I also thank our chair, the noble Baroness, Lady O’Cathain, for her leadership, and, indeed, fellow members of the committee for their companionship.
I join the noble Baroness in saying that we received the Government’s response only 24 hours ago. It was impossible for all of us to study it and make a proper response, so as she said we shall have to reply by mail. It really is most unsatisfactory.
There was a time when we thought that young people who did not work were feckless: it was their own fault. That was a time of plentiful jobs and liveable wages. Now it is different. In the EU it is a time of austerity and of industrial and commercial change, which has eliminated many entry-level jobs, and technology and globalisation have eliminated or exported a lot of less-skilled work. Pay for the under-25s has actually fallen, in some areas to the same level as in 1997.
At the same time, young people live and breathe in an IT revolution, with its opportunities and challenges, to which the noble Baroness has just referred. These things are still not fully understood. Ways of doing business are changing. In some work, such as retail, IT skills replace the older technical and commercial skills. A LinkedIn profile can be as important as a CV. Your page on Facebook, or pictures on Instagram, or words on Twitter can strongly influence any potential employer. There is free movement throughout Europe, so that in some cases highly educated people go down the ladder in search of work and push less-educated workers further down, and those at the bottom get pushed off entirely.
This work of understanding and evaluating youth unemployment in Europe today revealed to me that young people have become the real victims in the aftermath of the financial crisis. Like the noble Baroness, Lady O’Cathain, I think we were all shocked. Evaluation proved difficult, partly because the system of transition from school to work varies in each member state. It also became clear that youth unemployment in the EU not only affects those who are poorly educated and without skills, it also affects young graduates. All this makes exact evaluation and comparison of the numbers not in work difficult. In our report, we use figures based on the ILO definitions; the noble Baroness gave us the numbers, so there is no need to repeat them.
What steps are being taken to reduce youth unemployment in the EU? The EU funds a youth guarantee scheme through the Social Fund, to be spent nationally and locally, subject to certain rules and standards. Where the unemployment rate is above 25%, the EU youth employment initiative provides further funds. Five such areas have been identified in the UK; the noble Baroness listed them. Ministers recently announced £170 million for a youth employment programme in five of our deprived areas. Can the Minister say whether these are the same five areas that the European Union youth employment initiative identified for extra funding? Is the source of the £170 million all or partly EU money?
Here in the UK we have the Youth Contract, which targets the neediest young people. There is also an employment allowance, which targets businesses by giving them a reduction in national insurance contributions. The Youth Contract is market-driven. Several witnesses told us that contractors had underperformed. We believe that there is a need for both the EU and the UK schemes. The government scheme uses payment by results to get young people into work, but is it enough? Market forces may deal with the skills mismatch, as long as it is addressed in a co-ordinated way. Market forces may produce worthwhile apprenticeships and traineeships as long as standards are high. Both of these we address in our report. However, will market forces deal with the need for young people to be work-ready? Will they provide the good face-to-face careers advice that we also seek in our report?
On the other hand, the EU schemes are part of a social contract, the kind of thing warmly welcomed by the Fairbridge programme run by the Prince’s Trust in Liverpool. We went there, and the noble Baroness spoke of this. Of the 207 young people it supported, nearly half had been affected by drugs and a quarter by alcohol. A quarter had poor mental health. Many were offenders or ex-offenders. Some were single parents or young carers. Market forces will not deal with these problems. Because EU funding is more of a social measure than an economic measure, we were impressed by the way other member states used the youth guarantee scheme to bring together employers, trade unions, charities and local and national government so that they all worked with each other.
The youth guarantee scheme has produced good results elsewhere in Europe, and we can and must learn from that experience. The lesson is surely that getting a job certainly changes a young person’s life, but many have to change their life before they can get a job. That is why we need both. It is because of these complex pressures and needs that we strongly recommend that EU and national funding should be spent locally—on the “grass roots”, as the noble Baroness put it—in consultation with young people, local employers, local charities and welfare organisations. They can deal with the human and social problems that often stand in the way of getting a foot on the employment ladder.
Elsewhere, the Government say that they strongly support the objectives of the youth guarantee but choose to deliver the objectives by other means. They justify this with the statement that 80% of 18 to 24 year-olds move off jobseeker’s allowance within six months. They move off to what? We received ample evidence that the schemes that take them off have,
“generated … a very confused marketplace”,
with a,
“plethora of support and … financial packages”.
Indeed, we were told that the CBI had counted 44 schemes coming from three government departments.
Other evidence that we took indicated that many of those young people coming off jobseeker’s allowance had stopped seeking employment; or had become so-called “self-employed”—the previous debate dealt with that; or were in short-time or part-time work without any opportunity for occupational development; or were living with multiple forms of insecurity; or were engaged in schemes that simply extended their adolescence; or were placed in some kind of community work without any motivation. Perhaps this is why, although we in the UK have more people in work than ever, we are less productive than we were in 2008, and 24% less productive than our key competitors in the European Union.
That indicates that something fundamental has changed in our labour market that will not be cured simply by a steady increase in the jobs count. The change will limit our economic growth potential unless we face up to this and work with the European Union on its schemes. Does the Minister agree that we need to be more ambitious and that the purpose is not to push people around to get the jobless numbers down? As the noble Baroness, Lady O’Cathain, reminded us, there are 2 million unfilled vacancies in the EU, despite the economic crisis and the free movement of labour around the Union: vacancies waiting to be filled by these young people. Surely the purpose is to empower them through the youth guarantee and the Youth Contract—as we say in our report, to empower them to contribute to our economy and to our society in the European Union; otherwise they will be left behind to become the scarred generation.
Lord Shipley (LD)
My Lords, I am glad to speak in this debate. I was not actually a member of the committee but I have a keen interest in issues around youth unemployment and have spoken previously in your Lordships’ House on the subject. As someone who was not involved in the deliberations of the committee, I find the report a very impressive piece of work. It is very detailed and contains a very helpful discussion of all the issues around youth unemployment.
I will mention two things in particular that I like about it. The first is the title—Youth Unemployment in the EU: a Scarred Generation? I think the question mark at the end is important. I think there is a very real danger that we are going to have a scarred generation, but it does not necessarily follow that we will if the right policies are adopted in what appears to be a period of continuing growth from now into the future. The actions suggested in the report that could alleviate the impact of youth unemployment, together with the actions the Government are already taking, mean that we can get more young people into productive employment.
The second thing that I am particularly pleased about is the report’s clarity on the varying definitions around youth unemployment and the associated definitions around NEETs—as we know, those not in employment, education or training—and inactivity, which is not quite the same thing as NEET, because it relates to anyone who is not working at all and is not available or looking for work.
There are many statistics across the EU and within the United Kingdom, but the truth is that whatever statistics you use—for example, whether you categorise students in full-time education—youth unemployment is too high both in the UK and across the EU. We simply have to get more young people into work. The report is right when it states that more control over EU funds should lie locally, and is also right when it acknowledges that the EU’s main role besides funding is to advise on successful innovation and good practice. I support the committee’s view that ESF funding should be assessed on real outcomes rather than just the cost and numbers of participants in schemes.
I hope that we may now be seeing the start of a downward trend in youth unemployment in the UK. It may be too early to say but there seem to be some signs of it. The number of young unemployed people who are not full-time students has now fallen by just under 100,000 since 2010. The number of NEETs is lower than at any time since 2005. One thing we have to do is to continue work closely with small firms because they are responsible for four of every five jobs created between 2010 and 2013. It is important to understand this because this performance by the SME sector in recent months has been impressive—as has the performance of the Government in encouraging apprenticeships.
Since 2010 1.6 million apprenticeships have been created and I welcome the plan to build this up to 2 million apprenticeships by 2015. Many of these apprenticeships are in the private sector. The previous Government created short-term placements predominantly in the public sector, and half the people on them returned to benefits. What this Government are doing is much more sustainable and we need that sustainability because youth unemployment has structural causes. It is not just a recent problem, although without doubt the financial crisis in 2008 and the consequent recession made it worse.
The youth unemployment rate across the EU in 1994—20 years ago—was 20%, very close to the current level. Thirty years ago, in 1984, youth unemployment in the UK was very similar to what it is now. Spain today has very high youth unemployment but in 1987 it actually stood at 45%. Even in 2006 in the UK, following a four-year period of growth, there was still very significant youth unemployment.
I think there is a structural issue, because Germany—which I will come on to in a moment—does not have that same structural problem. There is a cost to the Exchequer in this because youth unemployment costs several billion pounds. Some estimate it as more than the entire budget for further education for 16 to 19 year-olds in England. We would agree that it is better for young people and our economy to spend that money on training and apprenticeships and getting young people into jobs.
The committee has clearly had a debate about the Youth Contract and the Youth Guarantee. Its view on the Youth Guarantee differs from that of the Government. Clearly there is going to be a further discussion around that and I hope it might be possible for everyone to get round a table to have it. The Youth Guarantee is a guarantee for young people leaving school that they will have an immediate opportunity of employment.
My view is that the Government and all their partners must be focused on outcomes, which means that young people need to be suitably prepared to enter apprenticeships, employment or training. That means that they need a pathway at a personal level to enable them to move seamlessly from school to an apprenticeship, to vocational training or to college or university without waiting, and that they are “work-ready” when they enter the world of work rather than being expected to learn on the job.
The Government’s reply is that the Youth Guarantee model would not fit the UK. However, I think it could. What matters in this is the individual—that every individual has a personal plan and that they feel wanted and engaged. The statistics around NEETs and those who are inactive suggest that not everybody feels wanted and engaged. Therefore the principles behind the Youth Guarantee seem very important.
I will mention the role of Newcastle Gateshead, my home city, which is a Youth Contract pathfinder, in helping 16 and 17 year-olds into employment, education or training. It is interesting to note that almost half of 16 to 17 year-olds who have taken part have moved into employment or training; others are in education. That seems to be a sign that the policy is working. If so, that is an example of good practice that can be spread.
There is a very interesting statistic about the north-east in the Library briefing for this debate. It has the highest level of youth unemployment in the UK at 25%, but has a lower rate of youth inactivity than many regions, seven of which—including London—have higher rates of inactivity. I have puzzled over what the cause of that might be and have drawn the tentative conclusion that the Youth Contract is now helping. Over the past two months, 1,124 apprentices were taken on in the north-east. The National Apprenticeship Service has just announced this figure two months into its 100 Days Apprenticeship Challenge. Some 650 regional companies have taken on those apprentices, backed by the North East Chamber of Commerce and training providers, and impressively supported by the region’s press. That is partnership working at its best.
I will say something further about Germany’s youth unemployment. It is under 8%. Germany has high levels of youth employment and almost no unemployment among those in education. It has apprenticeships and vocational training in secondary education. That leads me to the role of our schools. Schools have a statutory duty to provide a careers service, yet a few months ago Ofsted reported that three-quarters of secondary schools were not executing their statutory duties satisfactorily.
Advice and guidance is broader than just careers advice. Students need to understand better the qualifications and skills required to enter an apprenticeship, particularly in science, maths and IT. They need programmes of visits to local employers to experience what the possibilities might be. Schools are central to the development of relationships with local employers through programmes or visits, exchanges and other opportunities.
In conclusion, the UK is doing better than many eurozone countries. Youth unemployment is far too high; we must learn from Germany. However, we have to use every lever within our power and remember that this is everybody’s problem to solve, not just the Government’s.
Lord Wilson of Tillyorn (CB)
My Lords, it was a very great pleasure to take part in Sub-Committee B, which drafted this report under the chairmanship of the noble Baroness, Lady O’Cathain. As other noble Lords have said, we were enormously well served by the staff and by the witnesses who came to give evidence.
I will deal with a couple of general points first and then deal in slightly more detail with the section of the report that deals with the job market for youth in the EU and with the question of migration. On my first general point, there is some evidence of improvement in the unemployment situation, including for youth recently, and for the overall situation for unemployment. That is obviously a good thing, and it is a good thing, too, that we in the United Kingdom have not been among those who were hit worst by the unemployment problem during the recession. Equally, however, we have not been among the best at dealing with the issue. We have been beaten by a long way by Germany, Austria, the Netherlands, Denmark and, somewhat to my surprise, Malta. We are not at the bottom but we are not at the top or nearer the top, where it would be nice to be. Despite this improved situation, what struck many of us and came out so strongly in the recent maiden speech of the right reverend Prelate the Bishop of Durham was the sense of despair among many young people—the feeling that they would not be able to get a job in their lifetime, that there was a tangle of ways to make progress, but that they were not capable of finding out what to do or how to do it. That is a very real psychological problem.
Another general point is that it was clear from the evidence we received that it is far better to deal with most of the issues of unemployment on a national basis. The differences between countries of the European Union are so great in that area—the disparity between the methods of employment and the structures are so great—that to try to deal with them on a one-size-fits-all basis for the European Union will not work. Therefore I am sure that the majority of the work on unemployment should be dealt with on a nation-state basis. But, equally, if funds are available from the European Union, we should make every effort we possibly can to access those funds.
I shall make one or two points about the jobs market within the EU. It was very interesting that there appeared to be a growing realisation that vocational training is just as important as purely academic training. One interesting bit of evidence was from Barclays Bank. It stated that it now had a new point of entry and it was for people who were not graduates. It explained that when it had only a graduate point of entry, many of those graduates found that what they were expecting to happen in terms of the job they were going to be given did not occur and therefore they left early. Therefore, it recruited people, appropriately trained and educated, for the jobs they were going to do. For many years we have downgraded the value of vocational training. It is rather good to see the circle turning and we are now valuing it again. That is a good thing. The noble Lord, Lord Shipley, referred to the number of apprenticeships and apprenticeship schemes. They are now being reintroduced and valued, but from the evidence we received there was a problem area here. Perhaps it is just a dumbing down of language. What is an apprenticeship? Some of the apprenticeships we heard about were a very long way from the traditional schemes of training people in skills for long-term employment. Some of the schemes, indeed, produced some pretty caustic comments from members of the committee because they did not seem like apprenticeship schemes at all—it was just a good headline to use. Apprenticeships, good; dumbed-down apprenticeships, not so good.
We need to be careful about wording that we use for all these different schemes: apprenticeships, traineeships and internships. It became clear—it became clear also in the Government’s reply to our report—that there are differences in different parts of Europe about what these schemes mean. Nevertheless it is a pity that the Government seem to be opting out of what is called the quality framework for traineeship schemes which the European Commission has put forward on the grounds that the criteria for these traineeships are not the same in other parts of Europe as they are for us. It seems worth trying to find common ground with other countries within the European Union which would help to promote traineeships and apprenticeships and also help to access EU funding for that.
It may be instructive if I quote from an interesting exchange which comes from the sayings of Confucius. I thought it might be rather nice to have sayings from Confucius when the Chinese Prime Minister is here. One of Confucius’s disciples said to him:
“I hear that the King of Wei wants your help in running his Government. What are you going to do first?”.
Confucius replied:
“What is necessary is to rectify names. If names are not correct, language is not in accordance with the truth of things. If language is not in accordance with the truth of things, then the affairs of state cannot be carried on to success”.
I think it was a good point, considering how long ago it was said. He went on to say that if things are not done properly, then the consequence is that punishment cannot be meted out correctly and, as he put it,
“the people will not know how to move hand or foot”.
We do not necessarily need punishment, but we need people to move hand and foot. Correct use of language may be helpful in this and may be helpful in accessing funding from the European Union as well. We need to know what we are talking about when we put forward schemes for apprenticeships, traineeships and internships. On a slightly different point, we also need to avoid schemes such as internships in particular becoming some form of low-cost exploitation—just a cheap way of recruiting labour. All these schemes surely should be designed for long-term high-quality jobs and training for that.
Another area which perhaps presents a similar problem to this is zero-hours contracts—much discussed and by many people much criticised, including by some of our witnesses. The committee concluded and indeed the evidence very clearly supported the fact that zero-hours contracts are helpful in present conditions. They allow young people to get experience and they reduce the amount of youth unemployment. Again we need to ensure that they do not become some form of exploitation. There are rules to protect workers and workers’ rights, and things such as minimum wages. Those rules need to be known and they need to be used.
Another area that is somewhat controversial but should not be shied away from is the issue of job migration. Understandably, the Government want to ensure that free movement is free movement to seek work and not to seek welfare, but we surely should not forget how much we in the UK have benefited from the migration of workers—nor should we forget how much our own young people can benefit from taking jobs elsewhere in Europe. It is marvellous experience and very good for what they do later in life. Migration of youth seeking and getting work is invaluable. It seemed from the evidence given to us that more could be done to publicise those sorts of schemes and opportunities. There is a scheme called Youth on the Move, which has a website that gives details of job vacancies all over the European Union. It was very clear in talking to people that most of them had never heard of it and that even fewer had actually accessed it. There is a job there for schools, colleges and any employment agencies, such as the Jobcentre Plus system. There are opportunities, and it would be very nice to see them used.
I raise one final small point on youth entrepreneurship. There seems to be a growing interest among young people in entrepreneurship—in other words, in creating jobs rather than just going out to find work. The report recommended that the European Commission should make it more explicit that two of the funds, the European regional development fund and the European Social Fund, should be used to back these schemes. Somewhat surprisingly and oddly, the Government in their response demurred; they said that, although nothing explicit appeared in the regulations on this, the funds can be used, and they saw no reason to alter the regulations. This is one of the issues that the wit of man should easily be able to resolve. The funds can and have been used, greater encouragement could come from the Commission so that they are used to a greater extent, and there is no need to change regulations, which is always a tremendous problem—so QED. As we went through all the evidence, there seemed to be a number of cases where we have got terribly tied up on questions of definition and small bureaucratic points, when with a bit of free-thinking it would be possible to solve those problems. Would that all problems of youth unemployment were as easy to resolve as questions like that.
As others have said, the unemployment situation is clearly getting better, and that is very encouraging. However, it remains the case that unemployment for anybody is a tragedy and debilitating, and for young people to go into adult life believing that they will never get a job is highly destructive. We need to do everything possible to avoid that happening and to avoid having a scarred generation. One hopes that this report in some small way will help to achieve that.
Lord Freeman (Con)
My Lords, it is a great pleasure to follow the noble Lord, Lord Wilson. I agree with virtually everything that he said and pay tribute to his experience and his contribution to the Select Committee. The noble Baroness, Lady O’Cathain, paid tribute to our clerk and the staff, which I very much endorse, but on behalf of my colleagues on both sides of the House I pay tribute to her as our Lord chairman for her patience for almost 12 months in dealing with many witnesses but also in bringing together an excellent report, for which the House should be very grateful.
As other noble Lords have said, we are dealing with a scarred generation, but there are some hopeful signs. In the past three months, youth unemployment in the United Kingdom has fallen by 60,000. That is a very small part of the total problem we face, but at least things are going in the right direction.
In my brief contribution tonight, I shall simply share with your Lordships two lessons that I have learnt. The first is one that I learned from my former colleague, my noble friend Lord Heseltine, in the Cabinet Office when he—and I, trying to assist in some ways—was trying to deal with issues such as unemployment, particularly youth unemployment. I think that his contribution to the debate, if he were here tonight, would be that we have to place the emphasis locally. We have seen that in Birmingham, on our visit, and certainly in Liverpool. National initiatives are fine, but very often the documents are read and discarded, or not implemented at a local level. If you focus locally, particularly where there are pockets of youth unemployment, which we saw in Birmingham and also in Liverpool, one can target effort, initiative and money, with the co-operation, obviously, of the local politicians. So, local emphasis is very important for me. That is the first lesson that I have learnt during the course of this inquiry.
The second lesson, which is probably counterintuitive for many colleagues, is the importance of looking at those 14 to 16 year-olds who will, when they leave school, in some cases join the NEETs—not in employment, education or training. It was an initiative of Gordon Brown, the then Prime Minister, to fund an organisation through the Ministry of Defence called SkillForce, which I have had the honour of chairing for the past 10 years. We have taken 50,000 schoolchildren who have been disruptive in schools through regular courses, where they are taught life skills and encouraged by former service men and women. Over the past 10 years, 85% of them have got into employment—in other words, they are not categorised as NEETs. I think that that emphasis is quite important. I am trying to encourage my colleagues in the Department for Education, and, indeed, in the Cabinet Office, to look not just at the 16 year-olds who are leaving school, but also at the category I have just referred to, who perhaps only have a single parent, are causing disruption in school and, if nothing is done to encourage them and provide some life skills, will end up unemployed and adding to our great problem.
Those are the two lessons. I promised to be brief and I am going to offer concrete action to my noble friend Lady O’Cathain. I am going to the Vote Office, I am going to buy 12 copies of the report and I am going to send them to 12 chairmen of the largest companies in this country with my encouragement that they should take action where necessary, where they have employment, factories or workforces, to help us reduce even further the level of youth unemployment.
Lord Brooke of Alverthorpe (Lab)
My Lords, I am a member of Sub-Committee B and was, happily, very much involved in the production of the report. Like others, I express my gratitude and pay tribute to the noble Baroness, Lady O’Cathain, for her brave leadership and determination to get the facts and to stick to making recommendations, even though they may not be too popular, necessarily, with her own Government. She has certainly ploughed an individual line there, well supported by her committee. My grateful thanks go, too, to our clerk Nicole Mason, to our policy analyst Paul Downing and to Deborah, as well as to our specialist adviser John Bell, who is up in the Gallery, for all the guidance and assistance which he gave to us.
Since we started this inquiry, as many others have mentioned, unemployment has declined, happily, which is welcome. Youth unemployment in the UK has also gone down, as indicated in the letter sent to us yesterday, although it has not gone down by quite so much as the general reduction in unemployment. None the less, that is a move in the right direction. However, we are still concerned about the underlying trend of 16 to 24 year-old NEETs. That is still a significant problem and a hard one to crack, as the Minister will know given that he tried to assist in the efforts of a previous Government to resolve this long-standing issue. This problem first reared its head in 2003-04, when the underlying figure for NEETs rose notwithstanding the growth in the economy and the general expansion of GDP.
As others have mentioned, there is also a very serious youth unemployment problem in many EU member states—hence the intervention of the Commission and the Council to try to help. We were not surprised to find that many EU countries were in a much worse position than the UK. However, as other speakers have identified, some are doing better, notably Germany, which is well ahead of the rest. Austria has also done well in this regard, as has Holland, and the situation in Scandinavia has improved. It was interesting to note that a significant change has taken place not just in Malta but in Finland. Those countries put that down to embracing the Youth Guarantee.
We considered what the winners in this situation were doing and whether we could emulate that. It is interesting to note that each of them has a more highly developed social partnership economy than we do. We tend to have a more flexible and laissez-faire approach than is the case in Germany and Holland. We also noted that all those countries had embraced the Youth Guarantee. Indeed, all the European countries have embraced it with the exception of the UK. That is an important difference and I shall devote most of my speech to addressing that issue. I appeal to the Minister not to stick too strictly to his brief when responding to the debate.
As we have heard, the committee took a lot of evidence and visited different parts of the country as well as Brussels. We found that the majority of people who submitted evidence to the committee, particularly people in this country, were in favour of adopting the Youth Guarantee. We produced a report in which we set out what we thought were cogent arguments for instituting a number of changes. We particularly wanted to persuade the Government that they should adopt the Youth Guarantee. We have been fairly modest in not asserting that it should be applied across the whole country and to all those who come off JSA after six months. We have suggested that the Youth Guarantee should be introduced only in limited areas, and that the Government should address those areas with 25%-plus youth unemployment.
Regrettably, the Government have resolutely tried to persuade us that what they were doing was more effective than the Youth Guarantee and praised the UK’s Youth Contract. However, many of our witnesses did not share that view of the Youth Contract, although it was interesting to hear what the noble Lord, Lord Shipley, said about how he sees it working in the north-east. We are grateful to the Government for sending us a 36-page document seeking to persuade us to drop our line that there was something special about the Youth Guarantee that ought to be explored. However, we have stuck to our guns. Indeed, we note that the written response still seeks to make us change our minds in that regard. I hope that the noble Lord might be prepared to reflect a little again on what we have put before him. Incidentally, I share the view of the noble Baroness, Lady O’Cathain, that when we get these long letters it would be a great help if the paragraphs were numbered in the way in which we have numbered our report. It would then be much easier to pick up individual points and refer the noble Lord to them.
I read that letter carefully overnight. I do not have a speech that responds to all the points, but I felt that the letter makes an underlying case for a trial of the Youth Guarantee. The more I read it, the more I thought, “They are making the case for us”. What comes through clearly is that there are areas in which—the noble Lord’s officials were open and straightforward with us on this when they gave evidence—they do not track everyone. In particular, I should like to ask a question about 16 and 17 year-olds. The noble Lord says that the number of NEETs has reduced significantly. We were unable to find the figures that related to these people. His department’s officials could not tell us how many were in that category. How many people just disappeared? When they left school, the officials did not know where they had gone. I should be grateful if the noble Lord could tell us the numbers and how he has managed to find them. When his people came before us in the autumn, they were unable to tell us.
This involves the worrying group that disappears into the ether. In our opinion, people in that group should be picked up because they are, effectively, trainee NEETs. If they disappear in this way, many of them will end up being permanently unemployed. We thought that if the Minister was prepared to look at the Youth Guarantee, he would find that they would be required to come into the system within four months of having left school or college. There would be a requirement to put them in the system and follow them through it.
I say to our friend the Minister, whom I refer to as a friend because he has worked on this issue for both sides, that it is difficult to see among the arguments he has advanced—given that we have European money and particular locations with special problems, and we are not asking him to run this across the whole country but only in limited areas—why he is so steadfastly opposed to the Youth Guarantee, when it has seemed to work elsewhere, has been effective and could be effective in the UK. Even if he is not prepared to look at the five areas—although I know that devolution means that Scotland has responsibility for what happens in Glasgow—and even if he went to just one of the four other areas, I am sure that our committee would be happy if we saw the noble Lord trialling the Youth Guarantee in one area.
Ultimately, while we share the direction in which the Government are travelling, to devolve down the line, we find that there are so many different interests with a finger in the pie that it is difficult to identify who, at the end of the day, has full responsibility for each individual who gets lost and ends up being permanently unemployed or workless. We have colleges and schools with a finger in the pie, as well as the careers service, the LEPs and the local authorities, which pick up people who fall into difficulties—but only where they have a responsibility to ensure that such people are cared for. We need to start looking at providing a worker who can help each person, take them into employment, training or education, and keep them out of this ever-growing category—a cohort that stays workless for many generations. It comes through clearly in the noble Lord’s letter that there are too many fingers in the pie. We need to focus on individuals who can actually deliver.
The Minister could use the money from Europe to trial the Youth Guarantee to see whether it works. It is perfectly in line with the compelling evidence that we received from the noble Lord, Lord Heseltine. This is not a party-political issue at all. We all have a serious issue and are trying to resolve those underlying problems. Ultimately, it should not be just at the four-months point when intervention should take place to try to get the numbers down; in due course, such intervention will have to be when they leave college or schools. That is not in our report and it is not going to happen. Perhaps in the mean time, however, the Minister could at least reflect on whether to carry out a trial, implementing it at the four-month point in one of the areas of the country where we have 25%-plus unemployed.
The Earl of Liverpool (Con)
My Lords, as a member of EU Sub-Committee B, I should very much like to associate myself with the remarks of my noble friend Lady O’Cathain and other noble Lords in expressing sincere thanks and gratitude to our clerk Nicole Mason, to our policy adviser Paul Dowling, to Deborah Bonfante for the secretarial help she provided, and lastly, but by no means least, to our specialist adviser John Bell. The committee had 20 oral evidence sessions and 54 written submissions. The period from the first call for evidence to the printing of our report, as my noble friend Lady O’Cathain said, was eight months.
During that time I travelled with others to Liverpool, where we met young unemployed people on the Prince’s Trust Fairbridge project. I then went to Lithuania, where I and our clerk attended a two-day chairpersons conference, which our chairman was unable to attend, on the youth unemployment problems in the EU. It has been quite a journey—one which it would have been impossible to undertake without the advice, guidance and support we received from our staff.
The first and perhaps obvious thing I will say is that there is no one-size-fits-all solution to youth unemployment problems, which all countries in the EU face. As paragraph 3 of the summary on page 5 of our report says:
“We consider that the responsibility for dealing with youth unemployment rests primarily with Member States”.
However, much can be achieved by learning from good practice across Europe. We heard from the Centre for European Studies, which attributed Germany’s economic success to reforms enacted by the Schroeder Government back in 2003-04, which involved working with social partners to enact corporate downsizing and restructuring, and wage reticence on the part of the unions.
The TUC, UNISON and the British Chambers of Commerce said that social partnership was less well developed in the UK, but all expressed a willingness to work together on such issues as career advice in schools and improving representation of the young in their organisations. We welcome this increased co-operation and encourage social partners to work even more closely with the Government and with each other.
There is an urgent need for that to happen, because we heard from a number of people, particularly the young, that careers advice in schools was generally poor. A recent report by McKinsey & Company confirmed there was a problem across Europe. The report found that less than one-third of the 5,300 young people surveyed in eight member states felt that they were getting good careers advice at secondary school level. That means that nearly 70% thought they were not receiving good advice. I find that truly shocking. My noble friend Lord Shipley referred to that problem.
By a happy quirk of fate, I have a young student of 17 doing some research work for me this week. Seeking his views on the committee’s report seemed like too good an opportunity to miss. I asked him what stood out as the issue most relevant to him. His immediate reply was the poor quality of careers advice he had received to date. I believe that there needs to be better dialogue between local businesses, schools and career advisers. We recommend in the report that careers advice should be better co-ordinated and that the National Careers Service should be extended beyond the 12 centres currently in the UK and act as a one-stop shop to refer young people to the different sources of careers advice.
We also received evidence about the skills mismatch, which is more of a problem in the UK than the rest of Europe. This is one of the main causes of particularly high unemployment rates among low-skilled young people. We therefore recommended that the Government integrate the EU Skills Panorama into careers services provided at national level through schools, job centres and online resources.
I was surprised to learn from the evidence given to the committee by Go ON UK that digital literacy—that is, IT skills—was worse in the UK than in some other member states, with 6% of young people in the UK lacking the basic online skills required to send an e-mail. The recommendation made in paragraph 103 that we could use,
“the European Social Fund and European Regional Development Fund to support enhanced provision of both basic and higher level ICT training and skills training in general”,
therefore seems particularly relevant, and I hope that this will be adopted by the Government.
During the education process, not enough emphasis is placed on the need to teach and encourage soft skills and social skills. Indeed, another organisation called WORKing for YOUth said that,
“employers tell us in no uncertain terms that it is the soft skills—the communicative skills, the social skills—that they find most lacking by the time people leave school to come to them”.
Surely this is something that schools should be teaching as a matter of course and I hope that message will be received loud and clear.
We were told by the Prince’s Trust how beneficial mentoring can be in building confidence and achieving positive outcomes. It also said that, for certain young people, becoming entrepreneurs and setting up their own businesses was a good option. We need more entrepreneurs, as other noble Lords have said, and I believe that my noble friend Lord Young of Graffham, with the support of our Prime Minister, is proposing that it should be included in the school curriculum and fostered and encouraged as a skill set.
Going forward, local enterprise partnerships—LEPs—can play a pivotal role in identifying the next generation of entrepreneurs. With the funds that they will have at their disposal, is it too much of a quantum leap to imagine that they could set up local quasi-venture capital funds, where good ideas are supported by funding on favourable terms over a reasonable timescale? Perhaps these could be run in tandem with the Government's excellent start-up loans scheme, which includes mentoring support. In the two years since its formation by BIS in 2012, I understand that the scheme has loaned over £91 million to more than 18,000 new businesses. This bodes well for the future creation of many SMEs and, it is hoped, as time passes, large public companies.
Statistics show that countries with a strong balance of payments surplus have low youth unemployment. This means that we have to invent and make things that people want, and this is where the entrepreneurs of tomorrow can make such a tremendous contribution. Last Tuesday in this Chamber, my noble friend Lord Bamford made his maiden speech. It was an excellent contribution, and I hope that noble Lords will bear with me if I quote just one passage from it, as I think it is very relevant to our debate today. The noble Lord said that,
“we have a duty to identify and nurture young talent. That is why, in 2010, we opened the JCB Academy in Staffordshire. The academy is now giving 500 14 to 19 year-olds a hands-on technical education … not just for the benefit of JCB but for British industry as a whole”.
He went on to say:
“We are creating real opportunities in industry for our young people. In recent years there has been much progress in the field of technical education. We need, however, to do more—much, much more”.—[Official Report, 10/6/14; cols. 267-68.]
University technical colleges can play a major part in producing the entrepreneurs of tomorrow, which in turn will make us rediscover our manufacturing skills, promote exports, reduce our balance of payments deficit and, most important of all, play a major part in bringing down unemployment. It is rare indeed to find an initiative with the potential to offer a quadruple win, and I hope that the 17 or so UTCs which we currently have in the UK will prosper and multiply. Indeed, I believe there are plans for another 30 to be opened by the end of 2016, which is really excellent news.
I was also struck by an idea proposed by the noble Lord, Lord Macdonald of Tradeston, in the same debate last Tuesday. He said:
“Finally, it is surely regrettable that half the UK’s large companies do not offer apprenticeships. We can no doubt change that if we sustain the cross-party consensus and support for vocational training. We should also look again at the proposal that the Government use the leverage of their billions of pounds spent in public procurement of goods and services to boost apprenticeship opportunities by requiring companies bidding for larger contracts to offer apprenticeships”.—[Official Report, 10/6/14; col. 270.]
I do not believe that the Minister who is responding to the debate this evening was able to indicate whether he favoured the noble Lord’s proposal, and so I end by asking him whether he might be able to give the House his views on this when he rises to his feet later this evening. I fear that I have gone slightly off piste on this last one and I hope that my noble friend on the Front Bench will forgive me.
Lord Clinton-Davis (Lab)
My Lords, one of the tasks that we set ourselves was to dispel, as far as we could, some of the hopelessness which affects young people today. We cannot possibly succeed in doing that entirely, but we can make a contribution, which is what we tried to do.
I wish that I could have gone along with my colleagues to Birmingham, Liverpool and so on, but unfortunately my health did not permit it. However, I think that we have done a worthwhile job and I pay a compliment to our staff, who were superb throughout. I also pay a compliment to our chair, who enabled all of us to make a contribution. She deserves the compliments of the whole committee as far as that is concerned. The sub-committee has been remarkably well led. She has shown a determination to involve all the members and, without exception, they have responded in full—sometimes, like me, rather too fully.
I also share our chairman’s view that it is outrageous that the Government should have responded to this lengthy report in the way that they have. We have a joint effort to make in tackling this important issue. Why have the Government been so late? Why have they chosen to come forward with their response so close to this debate? It is absolutely outrageous.
The sub-committee concentrated, of course, on the question of youth unemployment and, in particular, on the threat that it poses to young people and to society at large, here and in the European Union. How can the European Union assist member states on the question of long-term unemployment? Long ago I was a member of the European Commission, but I cannot recall a debate about this issue. Perhaps we were rather slow to tackle it or perhaps it was not of such concern at the time. All I would say is that this report sheds a certain light upon an issue that all too often is shrouded in darkness.
Of course, the foremost task lies with the member states—a point underlined by the sub-committee and repeated in this debate—but the EU can and should play a vital role in supplementing those efforts. I do not think that prejudice against the EU has any part to play in this. It is important to collaborate in order to find solutions for this important issue, if we can. Naturally, the EU cannot do everything and it does not try to do so, but it can indicate how member states might most usefully work together. The process of learning and working together can be hugely beneficial. The report rightly emphasises that we can also learn from the experience of others who are not members of the EU. They are suffering too, and they may have useful ideas to share. It is indeed in our mutual interest to do this. Moreover, as the report indicates, the EU’s Europe 2020 strategy has a prominent role to play in tackling youth unemployment in Europe.
As the report illustrates, although UK youth unemployment is lower than the EU average, we should not rest on our laurels. In fact, youth unemployment in the UK does not compare well with some other similar economies in the Union—a point that is highlighted in the report. In my view, the Government’s response is far too complacent about this issue. We contend in our findings that there is much to learn, and we have strongly suggested that EU funding should be far less centralised. The correct course for enabling Union funds is that they should be spread more sensibly among the people and organisations that are most affected so that they can be full partners in this enterprise.
The concept of the Youth Guarantee which has been advanced by the Commission is broadly supported by the sub-committee as an important initiative in the drive to confront youth unemployment. We have set out our support for the steps that are outlined for those parts of the EU which are most affected by youth unemployment. We have recommended that this youth employment initiative should be set up in five areas of the United Kingdom, which would receive that funding. This point has been made time and again in this debate, and we deserve a reply from the Government about what their intentions really are.
We also indicated the importance of young people working and gaining experience in other member states, but we must insist, as a vital ingredient, on the proper protection of workers’ rights, thus averting the exploitation of young workers.
My earnest hope is that the report of the sub-committee will help to advance the significant issues that are at stake. All in all, I close where I began by saying that the members of the committee, led skilfully by our chairman, have contributed largely to the findings that we seek to insist upon.
Baroness Uddin (Non-Afl)
My Lords, it is a great pleasure to follow the noble Lord, Lord Clinton-Davis, who has a long-standing record of contributing to these very valuable discussions. I thank the noble Baroness, Lady O’Cathain, for her leadership of this critical examination of this important matter. I was not a member of the group but, having spent three decades trying to connect neglected generations to potential employers, I took a great deal of interest in the report.
I found the report fascinating for its comprehensive analysis of the array of issues arising from young people’s prospects for employment. Some of the statistics are clearly worrisome. Despite not having been a member of the committee—or, I confess, having read the report as thoroughly as the noble Lord, Lord Brooke, clearly did—I should nevertheless like to take the opportunity to flag up two groups of young people that are of particular concern to me.
Jose Manuel Barroso, the President of the European Commission, said:
“I think it is probably the first time, at least since the Second World War, that a new generation faces the future with less confidence than the previous generation”.
The report also states that,
“as at February 2014 the seasonally adjusted rate of youth unemployment across the 28 EU Member States … stood at 22.9 per cent, more than double the overall unemployment rate of 10.6 per cent”,
although I believe that these issues do not arise just in the European Union states; it is a global phenomenon.
The report goes on:
“The current high levels of youth unemployment in the EU are not solely a consequence of the 2008 global financial crisis and the ensuing recession … For some Member States, it is due more to underlying structural issues in the youth labour market that have been accentuated by the financial crisis”.
It notes this welcome news:
“Youth unemployment in the UK is not as high as it is in some Member States”.
The UK Government acknowledge that youth unemployment is “serious” but stress that it,
“has been consistently below the EU27 average”.
The report also points out that,
“Eurostat figures show that … the UK’s unemployment rate is above that of Member States with which it might traditionally compare itself economically, such as Germany, Austria and the Netherlands”,
as has been stated by a number of noble Lords.
I should have liked to see the report make some reference to the condition of minorities in the various European states. It would have been interesting to draw some comparisons—for instance, how Muslim groups experience access to employment, and how discrimination is a barrier to youth in employment, access to apprenticeships, mentoring and work placements. With that in mind, I flag up the consistently high unemployment rates among Bangladeshi men and women in the UK, even among graduates from that community, notwithstanding that many are living in the shadow of high-earning City high-flyers. From my brief reading of the report, it does not break down any details about the position of minority communities in the EU so it is difficult to form any opinions about the particular factors impacting on employment in certain communities. Although I am confident about the life chances for young people from minority groups in the UK and that they are likely to fare better in comparison, it would have been useful to have some context for the position of other European countries vis-à-vis people from minority groups—for instance, how the Turkish community fares in Germany and the Algerians fare in France.
The report makes a number of recommendations about funding streams, as has been mentioned, and highlights good practice. It suggests that the European regional development fund can provide support to small and medium-sized enterprises for innovation, new business start-up and entrepreneurship, which could be open to young people; it could support job creation for different skill levels, thereby increasing employment opportunities for young people; and it could support SMEs in taking on apprenticeships and training placements.
I agree entirely with the points made by the noble Earl, Lord Liverpool, about the importance of mentoring projects. For about five years I led and chaired a group called the People into Management Network, which worked specifically to develop mentoring connections for graduates within the minority community. We worked for three years with 500 young women in particular, and that led to an amazing transformation of their lives. It enhanced their opportunities, and their confidence, to access employment that was available to them.
European Council funding for youth employment is also available. It is a specific and dedicated budget to address increasing opportunities for employment. The report suggests some reluctance from the UK to utilise some of the European funding available. Esther McVey MP, the Minister of State for Employment, has said that,
“the primary responsibility for tackling youth unemployment rests with the Member States”,
while the noble Lord, Lord Heseltine, argues that the problem of youth unemployment,
“should be addressed by people who live in an area, know it and understand it”,
and that such funding should be used where the unemployment rate is 25% or over. I agree with many of these sentiments. The unemployment rate among Muslim young people in particular is indeed above that threshold, so I hope very much that at least for this group some of the European provisions can be utilised.
I also note our own scheme, which has also been mentioned in the debate: the Youth Contract, the Government’s flagship programme, also aims to reduce youth unemployment and provide opportunities for education, training and work experience. Alongside these, there are many other examples of good practice across our cities, where local partnerships with businesses, local authorities and statutory and private sector programmes are providing opportunities to benefit young people and help them to find their feet in the workplace.
As we survey the sunny uplands of economic growth and some good news about rising employment, a dark cloud continues to hang over our many forgotten citizens. The statistics that the noble Lord, Lord Freud, has celebrated belie the exclusion of vulnerable groups from the workplace, which we must address. It is a matter of economic literacy and social justice.
This brings me to the second group I should like to highlight. I refer specifically to people living with disability. Research suggests that only 15% of people with autism are in full-time employment. Two years ago the noble Lord, Lord Freud, eloquently lamented the hundreds of thousands of adults with autism who leave education wanting to work but are not given the opportunity, not,
“because they don’t have the skills, the commitment, or the drive, but because many employers just don’t understand the benefits of employing someone with autism”.
In response, he launched a business-led initiative to help autistic people into work. I ask the Minister exactly what progress has been made since he launched the Untapped Talent programme to increase employment among the one in 100 in this country with autism. The report makes disappointingly brief reference to the experience of people with a disability. Paragraph 89 states:
“The successful provision of support to young people to prepare them for work demands a holistic approach centred around the individual. Key issues specific to each individual, such as their access to transport, the need for a safe and welcoming environment at home and in their workplace, criminal records, learning difficulties and other personal considerations need to be taken into account”.
On many occasions in this Chamber we have heard that, as we educate more and more of our young people to degree level, the youth unemployment rate is persistently low. We also know that there are many parts of the UK where access to jobs, training and work placement remains patchy. Careers advice remains inconsistent and inadequate in too many schools. For disabled children, the situation is dire. Too many are written off before they have even had an opportunity to try. Will the Government commit to ensuring that disabled people are covered in any extension of the job guarantees offered by so many of our European counterparts?
However, I concede that work is not for everyone at all times. Regrettably, some in our society are not in a position to cope with full-time employment. I read with great sadness the case of Mark Wood, who died last year at the age of 44. He suffered from mental health problems and had been diagnosed with Asperger’s syndrome, a form of autism. Unlike his doctor, Atos, contracted by the Department for Work and Pensions, declared him fit to work. His benefits were cut off, and four months later he was discovered, having starved to death. As benefits are cut, what will the Minister do to ensure that those with disabilities, including autism, are assessed correctly and, if able to work, supported into jobs? Will he reiterate his commitment to ensuring that people with disabilities who are able to work are fully supported to do so, and that they are helped into jobs by jobcentre staff who are adequately trained?
Individuals must be matched properly. Will the Minister assure the House that specialist support will be provided to vulnerable individuals such as Mark Wood, both at the point of their assessment and when moving those affected into work? We are wasting talent and we are stifling diversity. A diverse workplace is associated with happy workers and successful outcomes for all. Our economy and the fabric of our society will benefit enormously from action on behalf of all our citizens regardless of their colour, race, faith and disability.
Baroness Hooper (Con)
My Lords, as a new member of the sub-committee last year, I was pleased to be able to discuss the choice of subject for the latest report and agreed wholeheartedly that the issue of youth unemployment was the one that caused the most concern, affecting the whole of Europe, and that it was vital for all our economies to tackle this issue anew in the wake of the economic crisis. The inquiry has justified this decision. A focus at EU level has been worth while, even though most of the causes and solutions have to be dealt with at local level, country by country and often at regional or local level in each country.
Today’s debate has also underlined the importance of the issue as well as the extent of the problem. I agree with much of what has already been said. The process of preparing the report has been fascinating. I, too, congratulate my noble friend the chairman on the way that she outlined the background to the report and the main facts and conveyed the flavour of the discussions and debates that took place in the committee as a result of the many excellent sessions when we took evidence from a wide variety of witnesses. I also thank the committee clerks and our expert for their support and advice. I am glad that my noble friend Lord Shipley and the noble Baroness, Lady Uddin, who were not members of the committee, feel that the report is sufficiently comprehensive and wide ranging. I hope that it will make a valuable contribution to illuminating thinking on the problem.
I wish to focus on two aspects. The first is the use and relevance of European Union funding. I draw attention to chapter 3, paragraph 48, which points out:
“EU funds are limited in comparison with the scale of the crisis”.
It therefore seems that it is of the utmost importance that funds are used effectively and efficiently, not to subsidise existing national approaches and national funding but to try something new and then to evaluate it in the way that we recommend in paragraph 52. Criticisms are sometimes made about the system for obtaining Brussels funding. There certainly are defects in the system, which is complex and slow. Much of this we can control ourselves, as applications for European Union funding, whether made by national or regional bodies or by the voluntary sector, start in this country. My experience as a Member of the European Parliament was helped by the fact that in those days we had single-member constituencies. Mine was Liverpool. The committee made a useful site visit to Liverpool, which has been referred to. It is detailed in appendix 4. My experience dates back to the establishment of the Social Fund in the early 1980s. There was an active voluntary sector in Liverpool—remember, this was just after the Toxteth riots—and I was already in contact with many organisations. There was also severe youth unemployment. It was before the noble Lord, Lord Clinton-Davis, did his stint at the European Commission. In fact the noble Lord, Lord Richard, was then looking after Social Fund issues. I was able to set up seminars, conferences and teach-ins which explained how to go about obtaining funding from the then new Social Fund. This was especially relevant for the voluntary sector. The result was that Liverpool projects received well over 50% of all the funding available to the whole country. Things have changed since then, but that proves the importance of the role of local bodies and decentralisation and that if people are well informed about how to deal with these applications, they can go ahead and achieve things. European Union funding may be available, but if we do not claim it, we will not get it.
The other area of the report which I wish to underline is skills mismatch and careers advice. On the former, the statistics have already been quoted by my noble friend Lady O’Cathain. She also emphasised the extent of the problem. Chapter 5 covers the ground very clearly. However, a number of our witnesses commented on the poor quality of careers advice at schools and universities. Indeed, my noble friend Lord Liverpool has just made a valuable contribution on this. It has always been a concern of mine. I attended a recent meeting in the City of London at which the issue of youth unemployment was raised as a major concern for the leading companies that were represented there. They also pinpointed the need for better careers advice as part of a solution. The role of school governors was discussed, and it was felt that more could and should be done to encourage business and industry to become more involved. In this context, it was suggested that middle management, as well as governors, could act as mentors to encourage school leavers to consider careers of which their careers advice teacher might have no experience. It was even suggested that this could form part of the key performance indicators programme, which struck me as a good idea.
The whole issue struck a chord with me because the Education Reform Act 1988—which, as the then Lords Education Minister, I took through your Lordships’ House—was the legislation which first encouraged business and industry to become more involved in the governance of their local schools and universities. Clearly, legislation alone is not enough and there is a need to persevere in encouraging this to happen so that young people have contact with and advice from potential employers in their area. It is also important to be aware of what other European Union countries are doing to tackle unemployment and to share good practice. To be able to do this is an important element and benefit of our membership of the European Union.
For the many other matters that I would wish to refer to, I feel that I must leave the report to speak for itself. I commend it to your Lordships.
Lord Roberts of Llandudno (LD)
My Lords, I am grateful for the opportunity briefly to intervene and thank the noble Baroness, Lady O’Cathain, her committee and the team for their work. This is one of the most important issues that we face today. We have a generation, not only in Europe and the UK but throughout the world, of young people unable to dream of or aspire to any particular career, but in many ways wasting their lives. It can be a cause not only of great despair to them but of great danger. Where we have unrest, we have what comes from that unrest, which is a danger to democracy itself. I thank the committee for this report.
The noble Baroness, Lady Hooper, has just mentioned careers advice. That is why I am intervening: to make sure that we realise how important it is to have the best advice possible in our own country. At a time when we are cutting school budgets and so on, we must in no way demote careers advice and the guidance and mentorship in our schools which comes from that. It is so important that we can somehow give every child the best possible advice—and not by simply sitting him or her in front of a computer. There must be somebody who cares and understands, and possibly has a family in the same sort of situation. That is vital. That could of course lead to Jobcentre Plus, and I would like to know exactly what the link is between that and careers advice in schools. We must put this at the top of the agenda.
We should look not only at youngsters but at young people who want a second chance at their careers—who perhaps took the wrong road in the beginning, thinking that it would be easy. I could say that of myself: in school I chose Welsh instead of French because I already spoke Welsh. It was the easy way out. So often, we can make those wrong choices in our lives.
There is a lot more to be discussed, but this report is a step in the right direction. As other noble Lords have mentioned, the unemployment situation is not a level blanket across the country. You have places in the north-east and the valleys of south Wales, even though they are not included in this list, where the need is far more desperate than elsewhere. I looked at this list and there is such a difference between Wolverhampton and Wokingham: in one area you have possibly three times the unemployment rate of the other. In the north-east we have 25% of young people unemployed, whereas it is 15% in the south-east—so we need to prioritise.
We must not forget the other areas. How we do it, I do not know, but John Wesley would say, “Go to those who need you most”. That is my sort of thinking on this issue, and I thank noble Lords for giving me the opportunity to join in.
Lord McAvoy (Lab)
My Lords, I would like to associate the Opposition Front Bench with the tributes paid to the noble Baroness, Lady O’Cathain, to all the members of the sub-committee and to the staff who supported the members in producing the report.
Youth unemployment is certainly a grave issue that confronts the entire nation. This report should remind the coalition Government of their obligations to our young people. In a way, it vindicates the proposals set out by the Labour Party on our compulsory jobs guarantee as a contribution to providing a proper solution to this blight.
However, that is probably the only party-political point that I will make—I do not promise and I use the word “probably”—because, once again, I am impressed by the work of the House of Lords and its committees. The independence shown by the committee chairman, the noble Baroness, Lady O’Cathain, and the other members shows that it is completely counterproductive to try and force Ministers into a corner by making political points in this place. This place is unique, and I am coming more and more to appreciate its traditions because it works and I like things that work. In this place the style of operation works. The House of Commons, the other place, is a place for the heat; this place is the place for the light, and we have certainly got it in this report.
The problem is a stark one. While the fall in youth unemployment is to be welcomed, the current figure is still too high and large discrepancies exist among the different regions of the UK. Areas in the north-east and in places like Grimsby and Bradford are youth unemployment black spots—places that have been forgotten. To what extent, then, will the Minister take steps towards combating the regional disparities in unemployment?
This report highlights a number of significant recommendations which the Minister would be wise to heed. Hopefully, it shows him that the current approach stands accused of failing young people, not just in terms of employment, but in terms of their conditions of employment. The current strategy, while appearing to deliver results, does not reach far enough and the quality of work provided must be called into question. The report highlights the need to ensure proper conditions of work to prevent a situation arising in the labour market where an increase in casual labour among young people leads to exploitation.
A situation has been allowed to arise where there is a rising tide of insecurity at work. I totally condemn zero-hours contracts. I do not accept that there is anything good about them at all. I know some young people who are on zero-hours contracts and it makes them feel under-valued, unappreciated and at the beck and call of employers. It is not a good way of convincing young people to make a positive contribution to society.
The Government could be accused of making it easier for companies to exploit a young and vulnerable workforce. The proportion of young people in low-paid jobs has substantially increased, with the unemployment rate for low-skilled young people sitting at 37.2% in 2013. We have a pool of readily available, low-skilled, low-paid labour, which can be used and abused by dropping in and out of employment.
The effects of that type of employment cannot be underestimated. It may deliver “results” in the long term, but will leave a terrible scar in the minds of many of the young people involved in the long term. Can the Minister try to reassure the House that the fall in unemployment among young people is not in part the result of the large increase in precarious and casual labour contracts of the kind previously mentioned?
The report is also clear on the drawbacks of the Government’s Youth Contract in comparison to the Youth Guarantee. Here I declare an interest as a small—a very small—employer. The bureaucracy involved in trying to claim youth wages, which I am trying to do at the moment, is quite obstructive. If I am finding it difficult, other people must be finding it difficult, too.
The Government’s overall focus on the demand side of employment, on waiting for the market to deliver a solution, is affected by a dogmatic belief that the market alone can provide and that everything that comes from the European Union is bad. I have not been a great fan of the European Union myself, but we have to be fair—it seems that quite a lot of good ideas have come from it. In tackling youth unemployment, those ideas should at the very least be looked at.
It is also interesting to note that the report highlights a “mixed response” concerning the consultation with young people. The noble Baroness, Lady O’Cathain, already referred to the impact of speaking to young people. The British Youth Council highlighted the marked lack of engagement by the Department for Work and Pensions, noting that it was not as “diligent” in its engagement.
A far-reaching process, which takes a proactive and innovative approach, is required. I hope that my party is trying to produce a solution both nationally and locally. A shining example locally of such innovation can be looked to in Bradford. With the “Get Bradford Working” programme, Bradford Council is delivering on the ground, providing jobs, routes into work, apprenticeships and industrial centres of excellence, and providing training and education. Nationally, Labour’s compulsory jobs guarantee would, I hope, lead to real change, especially in those areas left behind, which need change most. We cannot afford to see a generation condemned to the slag-heap by wasting fresh and vibrant talent both socially and economically. The type of local innovation seen in Bradford, coupled with Labour’s jobs guarantee, would deliver for people right across the country, showing that there is a better, fairer and more effective way of battling against the scourge of youth unemployment and providing a recovery not just for the few but for the many.
I will comment in particular on what was, I am sure, the spontaneous pincer movement on the Minister conducted by the noble Baroness, Lady O’Cathain, and my noble friend Lord Brooke of Alverthorpe. I accept that it was spontaneous, but nevertheless, that is how this place works, and how it is working now. I add my voice to theirs in asking for the Minister to consider a small programme, using European Union money, which responds to the committee’s report. That would show the flexibility required to demonstrate that at least an effort has been made and that something different has been tried. Given that the suggestion comes from such weighty people as the noble Lords I mentioned—and, I hope, from all the members of the sub-committee—I hope for a positive response from the Minister.
Finally, the noble Baroness, Lady O’Cathain, made four recommendations, on consultation, best practice, management schemes and a better approach to matching skills to qualifications. Again, I support those recommendations to the hilt. I hope that the perhaps surprisingly conciliatory tone of my speech has added to the pincer movement.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, as always, this has been a very high-quality debate, which I have very much enjoyed. I am very grateful for what has clearly been really hard work from this committee to put together a really interesting summary of these issues. I need to add my thanks to my noble friend Lady O’Cathain for running that work so well; I heard the tributes and the appreciation from the rest of her committee.
As noble Lords know, we have responded formally to this report and several noble Lords were able to pick out what we were saying, despite the fact—I need to apologise for this; I only discovered it this afternoon—that we actually sent out to colleagues a completely unformatted version of the response. I have taken steps to repair that so there will be something noble Lords can actually read. I am very impressed that many of them managed to do so anyway. I am sorry and I shall ensure that they get appropriate hard-copy versions. I do not know quite how it happened, but it did.
Let me start off by setting out where we are today. We have made really good progress on youth unemployment, and that has been particularly the case over the past year. As the economy begins to pick up, we are starting to drive out the cyclical rise in youth unemployment that we saw in the recession. The youth claimant count has fallen for the past 30 months and overall youth unemployment has been falling since last summer. Excluding students, it now stands at 565,000 youngsters. Of those leaving JSA—in response to the question of the noble Lord, Lord Haskel—about two-thirds go into work; others go elsewhere because the young move very dynamically.
We still face really big challenges. Long-term youth unemployment has risen in the recession and it remains at more than 100,000 people above the pre-recession level. We have, though, seen a welcome drop in that particular figure over the past seven months, but it is vital that we maintain the trend. Through the Work Programme and Youth Contract, we have put in place about the most comprehensive response to long-term unemployment that has ever been seen.
As the noble Lord, Lord Brooke, said this evening, this is actually a structural set of issues with really deep roots. Even before the recession, more than 1 million young people were neither working nor in full-time education. That is why we are addressing those long-standing structural issues through our reforms to education and skills and by improving access to apprenticeships.
As the report explains, unemployment among young people is a really serious problem in many pars of the EU. Clearly the source of this is diverse and is different in different countries, with origins in structural or cyclical effects, or some combination of the two. It is important, as many noble Lords said tonight, to recognise that the structural causes of unemployment are issues that are most effectively tackled by individual countries and not by a one-size-fits-all solution.
Just to pick up the related point on what is happening in different parts of Europe and the point made by the noble Lord, Lord Roberts, on regional differences, 90% of the fall in the year that we have very happily seen in the youth claimant count has been outside London—so we are seeing some real regional responses.
There was concern, particularly from my noble friends Lord Liverpool and Lady O’Cathain about a skills mismatch. In 2010, we were left with a system that was simply not delivering what it should have for our young people. I know that noble Lords will have heard me talk about the Wolf report, which is one of the most interesting and disturbing reports that I have ever read about the situation in this country. It concluded that the system that was in place was,
“failing at least 350,000 of our 16-18 year olds, year on year”,
with substandard vocational training.
Improving access to quality training remains a key challenge, and it is one that we are facing up to. We are improving the standard of vocational training in this country and we are expanding apprenticeships. We are committed to tackling youth unemployment. Taken together, our package of labour market interventions, programmes and reforms tackles both structural and cyclical unemployment. This programme is supporting young people to equip themselves with the right skills to succeed. As the noble Lord, Lord Haskel, said, we need to be more ambitious—and we are not complacent. We cannot be complacent at this stage. There is more to do to support young people into work, and we are committed to building on some pretty outstanding improvements.
On the numbers issue raised by my noble friend Lady O’Cathain, we now have 65,500 youngsters starting a job based on the work incentive programme. The payments come a little bit later. We have 275,000 young people taking part in our work experience and pre-employment training, with 146,000 taking part in work placements and 48,000 in sector-based work academies. Some 390,000 young people have joined the Work Programme, and 89,000 have now got sustained employment.
On the point from my noble friend Lord Liverpool on entrepreneurs, the figures for that were just published today. There are now 8,280 18 to 24 year-olds with mentors on those schemes, and 3,370 are on the allowance.
Clearly, there is more to do. Universal credit, because of the way it is structured, will give young people under 25 in-work support for the first time and will encourage young people to try their hand at different jobs, while providing responsive and continuous support as they move in and out of work. That will become a really important support for youngsters as they do that necessary experimentation to find out what they enjoy and want to take forward as a career or job interest.
The Government will reduce the cost of employing young people by abolishing from next April basic rate employer national insurance contributions for people aged under 21. We are trialling new help for young people, including intensive support for 16 to 17 year-old NEETs not in receipt of benefits. We are piloting new, day 1 help for unemployed 18 to 21 year-olds to improve English and maths skills. To help schools to better meet their duty to provide independent careers advice, we are strengthening statutory guidance and developing the role of the National Careers Service. Ofsted will also be giving a higher priority to careers guidance in school inspections. We accept the point from my noble friend Lady Hooper that employers have an important role in course design by providing placements, sponsoring students and so on.
In response to my noble friend Lord Liverpool’s very pertinent point, the DfE is strengthening the teaching of digital skills in schools by replacing ICT with computing from September this year. We have introduced traineeships, which are available for young people aged 16 to 23 inclusive. These consist of pre-employment training, a work experience placement with an employer and English and maths training to GCSE level 2 for those who need it.
We have now got NEETs down to the lowest level since we started to count them in 2001, so the number now sits at 53,000 16 to 17 year-olds. I know that the noble Lord, Lord Brooke, wanted to get hold of that figure, produced by the ONS from the Labour Force Survey, and I am quoting the fourth quarter of 2013, which is the latest figure. There is a big change coming in that area. That young area has been a weakness as we raise the participation age. That is, in the spirit of new bipartisanship of the noble Lord, Lord McAvoy, something that both sides have agreed on. Participation age goes to the end of the academic year in which people turn 17, and from summer 2015 this will be until their 18th birthday.
We are giving young people support when they need it most, referring 18 to 24 year-olds to the Work Programme early to keep them from becoming long-term unemployed. We have talked a lot tonight about apprenticeships, which already stand at 1.7 million with a goal of 2 million. I am not being complacent but we are not in the same situation as much of Europe. Our youth unemployment rate is well below the EU average and, for those who have left education, the UK has the second highest youth employment rate of the major EU economies, behind only Germany. I should point out that Germany does not have a Youth Guarantee but has developed its own approach. While we learn about good practice, a point made by several Peers, we know that member states of the EU with the lowest youth unemployment, such as Germany and the Netherlands, have good vocational training systems. We know from their experience that our reforms to apprenticeships and broader vocational training are the key to our reducing our youth unemployment in the longer term. That is why we are putting so much emphasis on that.
Let us look at the EU Commission’s proposed Youth Guarantee. Our view is that this is a response with its eyes too much on the past, dealing with the immediate consequences of the recession and not addressing the structural problems that it is vital we tackle now. That is why we do not believe that this is the way forward. The Youth Guarantee is the type of rigid approach that we have tried and has failed us in the past. It has not been fully implemented elsewhere—except, recently, in Finland—and it has not worked here when we have looked at schemes such as the Future Jobs Fund, which have performed no better than the work experience schemes but at much higher cost. Therefore, we are not clear that the guarantee represents good practice.
It is vital that we help young people to experiment in the labour market and try out different jobs. All our policies, from universal credit to the Youth Contract, embody this approach; the Youth Guarantee does not. It is not flexible and does not meet the test we set ourselves of offering the right help to the right people at the right time.
I assure noble Lords that the Government do not intend EU funds to subsidise existing national measures but to complement them by addressing local needs. In England we are allocating the majority of relevant EU funding to local enterprise partnerships—so the funding will be used locally—which we think are best placed to offer that tailored support to young people. I think there is common ground there between us and the committee’s report. We believe that this decentralised and flexible approach is the best way to target young people who are most at risk. Indeed, noble Lords will have heard me talk about our local support services framework, in which the DWP is working with local authorities to build the partnerships that will provide holistic support for people who need help before they can enter the workforce, particularly as regards their underlying problems. We are expending enormous effort in doing that and using funds from a variety of places, including the ESF.
The noble Baroness, Lady Uddin, referred to Untapped Talent, our autism initiative introduced a couple of years ago, which she remembers so well. Our Disability Confident campaign, which she may remember, embraces a wider context and seeks to ensure that employers are aware of this valuable labour resource, which they may not have concentrated on enough in the past. We are ramping up support for the disabled within Jobcentre Plus and the Work Programme. One of the things that I am most keen to get right is our support for people with mental health issues, and we have introduced a series of mental health pilots.
I should like to take a moment to reflect on the EU Commission’s views of our programme. The Council of the European Union agreed to the Youth Guarantee recommendation in April 2013, one year after we had implemented the Youth Contract. We responded to this recommendation, setting out in detail how the Youth Contract and other policies address the important aim of reducing youth unemployment.
The European Commission recognises the success of our programme. In its annual draft country-specific recommendations this month, the Commission noted:
“The United Kingdom continues to address the challenges of unemployment and underemployment as well as the specific issues related to youth unemployment”,
and urged us to,
“maintain commitment to the Youth Contract”.
While I am not in the habit of looking first to Brussels for inspiration, I am happy to receive such an acknowledgement of the path we are taking.
I again thank noble Lords for their excellent contributions. I think that I have covered all the issues that were raised. I hope noble Lords agree with me that it is clear that we need to stay the course with our programmes to tackle youth unemployment. We have a long-term economic plan and it is working.
Baroness O'Cathain
My Lords, I thank everybody who has taken part in the debate. I particularly thank my noble friend the Minister. I gave him a slightly hard time—only slightly. I can be much more ferocious than that. His response was very good but, in listening to it, I reflected how confusing this whole issue is. We have so many different ways of looking at it. If I were 17 years of age with not much educational background, I just wonder how I would react having listened to this debate. Perhaps I would say, “There are the people in suits and dresses saying they are going to do this and that”. The Minister mentioned about 20 different and confusing areas that could solve the problem. Is it not just all too confusing? The final point that my noble friend made about the Youth Guarantee and the Youth Contract did not reflect the letter that I saw, which was much more along the lines of, “Oh well, okay, the Youth Contract is all right”, but people in Brussels were still saying that they really wanted the Youth Guarantee. Perhaps we should have another discussion about that.
In the mean time, I thank everyone who has taken part in the debate. I certainly want to say to my noble friend Lord Shipley that I am sorry he thought that the report was depressing. The fact is that it is a depressing situation.
Lord Shipley
I am sorry but I said that it was an impressive report, not depressing.
Baroness O'Cathain
I am sorry. That is the second time “sorry” has been mentioned in this House tonight. It is nice to be able to say sorry.
The situation is actually depressing throughout the EU but there are shafts of light coming in. One of the great things about the report is that it is not political. We did not mention parties and tried to work for the good of the youth of the whole European Union. We should, in particular, use the experience that can be observed in the member states and test it out to try to solve our own horrific problem—because it is a horrific problem. I go back to the right reverend Prelate the Bishop of Durham’s analysis in his maiden speech the other day. We have to remember that.
The Minister neatly glided over the situation regarding local enterprise partnerships and did not say whether he was prepared to consider whether they should consult young people, in groups or individually. We received most of our really good evidence from talking to those young people. After all, it is the young people who count. That is why we are doing this and why I hope we have made a difference to the future of these young people by exposing a lot of the stuff in this report.
I thank again all our staff. There are so many thanks going around this Chamber but I could not have done any of this without the terrific support that we received, and the members of the committee have been ideal. If noble Lords want them as chairmen of other committees, look at all of them. They do an excellent job, and I thank them.
Motion agreed.