Trade and Investment

Earl of Caithness Excerpts

Monday 15th June 2015 Lords Chamber

[The Earl of Caithness (Con)]

My Lords, it is a great pleasure to welcome my noble friend Lord Maude of Horsham and congratulate him on that fine maiden speech. It is also a pleasure to have another member of the former Paymaster-Generals club in this House. We are a small band, but I am glad that we are all here.

In the past five years, the coalition did well, but this Government need to do better and have the opportunity to do so. I welcomed the overseas business network initiative launched by the Prime Minister late in 2012. Will my noble friend tell the House what progress there has been towards doubling UK annual exports and increasing the number of UK exporters, and if and when the Government are going to implement some or all of the Cole commission report, which is an important step in the subject we are discussing?

Our Government can do only a little to support trade and investment by themselves. The rest is setting the scene. The noble Lord, Lord Davies, mentioned infrastructure. When the Government have set the scene, it is up to businesses themselves and, importantly, other countries in the rest of the world and their attitudes.

My noble friend covered trade with the rest of the world fairly extensively. I want to focus on trade with the EU, which accounts for about half our trade. We are part of a market of some 500 million consumers. Peace and stability is fundamental to trade, and there is no doubt that the EU has helped to keep Europe pretty well free of war for nearly 60 years, in marked contrast to the previous 60. The peace that we take for granted is not something that our parents or grandparents or earlier generations could. As for stability, I, too, would say how concerned I am about the referendum last year in Scotland and the upcoming referendum on the EU. That is destabilising—it is bad for trade and for investment.

Having said that, I think that we are incredibly lucky, but not everything is rosy in the garden. In the negotiations that the Prime Minister is carrying out with other countries, it seems that the red line for them is the free movement of people. That was one of the objectives of the treaty of Rome and the EU treaty. Another objective was to create an internal market where competition is free and undistorted. If we want to play the game of red lines, that should be a red line for us. Of course, we will not in our lifetime see an internal market in Europe like the US, with its smaller population and lack of language problems compared with the EU. However, we have been badly let down by protectionism by other member states and by a weak Commission. Add that to the limited growth worldwide, and these are strong headwinds for any Government to overcome.

Although the internal market has increased trade with the EU by about 15% per annum over 10 years, there is still a transposition deficit of single market legislation at national level by member states. What is the current percentage of legislation not implemented, and what action is being taken against those recalcitrant states? As an example, I give the second Single Market Act. By the end of 2013, the Council was supposed to have adopted legislation on all items, but I understand that today five of those 12 key items have not been implemented.

There are four key markets in the EU that can be improved to help trade, investment and growth. I would class them as services, capital, digital and energy. The single market is one of the EU’s best achievements; it goes beyond a free trade agreement and reduces those pernicious non-tariff barriers, such as different regulatory regimes. It has been remarkably resilient through the financial crisis, but it is far from complete. We need to close the productivity gap with the US, which continues to grow faster than us, thanks mostly to the development and take-up of information and communication technology. Some member states, such as Slovakia and Slovenia, have cut a number of barriers, but the likes of France, Germany, Italy and Austria retain highly protected service industries. Yet services make up the great majority of economic activity in most developed countries. The original services directive provoked hostility, so does my noble friend agree that a more cautious step-by-step approach, although irritatingly slow, is likely to produce better results in the long term? What is the Government’s view on increasing mutual recognition in tourism, business services, construction and retail? In particular, what progress is being made on those fronts?

I turn to the capital markets union, where progress is starting, thanks to my noble friend Lord Hill, as EU Commissioner. I hope that we will debate in the near future the report of the EU Economic and Financial Affairs Sub-Committee on the proposed CMU. I will reserve my remarks for that debate and turn to the digital market, another area in which the Commission is overanxious and muddled. New technology increases income when it raises productivity, something that the EU is pretty bad at. It is not about creating a rival to those big American beasts. It is also not about creating jobs per se. The combined workforce of Facebook, Google, Amazon and Apple, excluding the supply chain, is considerably less than that of German companies already operating in the UK.

The EU must embrace this opportunity to provide growth, and one way to do that is the direct responsibility of government: changing the tax rules. Does the Minister agree that it would be hugely beneficial if corporate tax and VAT were to be payable in proportion to companies’ revenues in that country? How much longer can we allow Luxembourg and Ireland to be free riders on consumer demand in other member states? Bringing down barriers within Europe could contribute in excess of €400 billion to Europe’s GDP.

The EU’s aim must be to put more emphasis on growth at the heart of its long-term plan. To achieve that, it needs to open up its markets more fully so that the more productive firms in one country can move into another and take market share. Mutual recognition is a key ingredient of that policy. In that way, the 28 countries that currently form the aged and increasingly geriatric aunt of the world, the EU, will rejuvenate themselves, and trade, investment and growth will flow naturally from that.