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Internal Market in Services (EUC Report)

My Lords, I too, congratulate my chairman, my noble friend Lord Woolmer of Leeds, on his leadership in this inquiry. As the debate has already shown, we found it was an extraordinarily difficult subject to get hold of, and even more difficult to keep any clarity of view. We—and, indeed, many of the witnesses who came to help us—all struggled with it. The reactions displayed by many of our European Union colleagues and important sections of UK opinion, such as the Trades Union Congress, ranged from dismay to open vilification. There was a time, in about May this year, when it was tempting to conclude that the whole subject was too difficult and that as the directive was going to run straight into the sands and be voted down in the European Parliament anyway, we might as well give up trying to inquire into it. My noble friend Lord Woolmer, with his customary intellectual persistence, kept the heid, as my Scots family say, kept focus and kept us all concentrating to reach our conclusions. The genesis of this directive lies in the undoubted fact that while European Union members agreed from the beginning to create a free market in goods and services, there remain, more than 50 years after the Treaty of Rome, substantial barriers to cross-border trade and services. Goods are, with minor exceptions, freely traded, greatly to our mutual benefit, but not services. Every attempt to liberalise services has been hard fought, bitterly resented and partial in its results. I speak as one who both observed and assisted as a participant in the battle to arrive at something that looks like a financial services action plan—painfully arrived at, and by no means yet executed. Liberalisation of railway services, also the subject of an earlier report by the sub-committee, has been almost as painful to agree, and as partial in its execution. Our committee was also not convinced, in the context of last year’s inquiry into liberalisation of gas markets and security of supply, that liberalisation of energy supplies was sufficiently accepted by member states to make its execution a matter on which realistic planning could be based. Progress in opening up an internal market in services has generally been so slow as at times to be almost imperceptible, in sharp contrast to the development of an internal market for goods. It is against that background that the commission produced a comprehensive directive that sought to make rapid progress on all fronts, rather than continuing to legislate slowly on a sector-by-sector basis, and our report ended up in total agreement. The interesting thing was that all member states had agreed to create an internal market in services; it just did not seem to be happening on a universal basis. Indeed, as our report observes, the directive itself is otiose. As witnesses from the legal firm Clifford Chance told us, all the measures in this directive already exist in European Union law, and it adds nothing new by way of legal rights and duties. Essentially, it simply says that this is what member states agreed and now we have to do it. I felt an eerie sense of familiarity with experience much earlier in my career trying to persuade the government of the day that a law on domestic violence was needed. Opponents argued, correctly, that assault on women—or men—had always been a crime and that any further legislation in this area was unnecessary and confusing. Practitioners in the field, as I then was, knew, however, that cases against perpetrators were seldom brought and even more rarely successfully prosecuted. In the end, legislation was introduced whose purpose was, essentially, to assure the assaulters and the police who were charged with arresting and prosecuting them that assault really, really was a crime and really, really must be prosecuted. There is an analogy with services in the EU. All agreed many years ago that barriers must not be placed in the way of cross-border trade and services, but many member states and key national institutions seem to be having great difficulties in accepting the provisions of a directive that provides for dismantling these barriers. The UK Government advocate liberalisation and are in the lead in pressing for the directive to be implemented, but we are trying to exempt health services from its operation and we have not yet convinced the Trades Union Congress of the case for it, and our four largest trade unions oppose much of the directive. As our report observes, some founder members of the European Union see it as an attack on their entire social policy framework. Under the patient and rigorous leadership of our chairman, the sub-committee teased out the principal objections to the directive and was able to arrive at the conclusion that they were unfounded. The most controversial principle, which provides that firms seeking to provide services outside their home state can do so on a temporary basis, operating under the legislation of their country of origin, could not really be said to threaten security of employment, as trade unions in the UK and other member states believe, much less threaten the fabric of social provision established in the older member states. Professional standards in key areas are already assured by another directive on professional qualifications. The Posting of Workers Directive, which was agreed 10 years ago in 1996, means that any foreign worker in the European Union is bound by the employment laws where the work is carried out, even if the employment laws in his or her own country are less stringent. Nor will the directive relax hard fought for health and safety standards since EU-wide legislation covers these matters already. This is all very puzzling because, in terms of consumer protection, we had accepted for years that goods made in some European Union countries may be produced to standards below, or different from, standards of consumers in the country to which they are exported. We could find no compelling reasons why consumers could not accept services on this basis. The German hairdresser, who, along with the Polish plumber, haunted all these discussions, provides a useful example. In Germany, hairdressers are required to serve a substantial apprenticeship before they may set up in business as a Friseur. Under the directive, it would be possible for a British hairdresser, who has not served such an apprenticeship, because that is not British practice, to set up on a temporary basis in Germany. German consumers might not know that the British hairdresser was not trained in the same way as their own and could find themselves with a bad haircut or, more worryingly, injury from a poorly executed colouring job. But the temporarily established British hairdresser is subject to the same health and safety regime as his German counterpart while he is in Germany, and if he is merely incompetent rather than dangerous, surely he would be avoided by German consumers on the basis that one does not go back to a person who did a bad haircut. Opposition in this case can be based only on the fear that under-trained British hairdressers, or hairdressers from anywhere else in the European Union, would undercut German prices. But German residents buy goods made in European Union countries where German manufacturing standards are not adhered to and welcome the choice opened up to them. German manufacturing jobs were very probably lost in the past because these goods were being manufactured in other parts of the European Union, but the German consumer, and indeed all of us, accepted this loss in the belief, fully justified by events, that the benefits of a larger market would be greater than the temporary disadvantages to some workers. Members of British trade unions buy textiles manufactured in other parts of the European Union, having accepted some time ago the consequential disappearance of own textile industry. Our report fairly concludes that, in logic, the fears expressed to us lack foundation and have been exaggerated for political reasons and that, in particular, the argument advanced by some member states that the directive is designed to threaten society as they know it cannot be substantiated. However, the worries persist, and anxieties are being expressed by groups that are neither fools nor Luddites, and it must be important to understand the root causes of these concerns given that they cannot altogether be found in logic. My noble friend Lord Giddens has suggested one set of causes, but it has always seemed to me that the most threatening thing about the market for services is that it is so large and so important that any change in its structure must generate winners and losers—there is no change without generating winners and losers. The market was always large, but given the decline in manufacturing as the low-wage economies of the world take over, and the demands of an increasingly well off population, it has now developed in the European Union countries to the point where services make up 54 per cent of gross domestic product.