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Lords Chamber

Volume 768: debated on Thursday 4 February 2016

House of Lords

Thursday, 4 February 2016

Prayers—read by the Lord Bishop of Norwich.

Female Genital Mutilation: Education in Schools


Asked by

To ask Her Majesty’s Government how many schools are now using personal, social, health and economic education classes to inform their pupils on female genital mutilation.

My Lords, female genital mutilation is child abuse and a crime. An effective multiagency approach is key to safeguarding girls from FGM and schools play an important role in this, as they do in safeguarding children from all forms of abuse. Schools have the autonomy to tailor their local PSHE programme to reflect the needs of their pupils, including teaching about FGM, drawing on the resources and evidence provided by experts and organisations such as the PSHE Association.

I thank the Minister for that Answer, but in a way she makes my case for me, because we have a safeguarding duty to the 60,000 girls who are at risk. If we do not inform them about the risks of FGM—what to look for and who to go to—then I believe we are derelict in our duty. Does the Minister agree with me that one of the best ways to protect girls is to make teaching on FGM mandatory, whether through PSHE or other means, and will she now commit to do so?

My Lords, since 2014 FGM has been included in the PSHE programme of study so that is now an option for teachers, but we believe that it should be up to schools to have the autonomy to reflect the needs of their pupils. Of course teaching about FGM is one option that they can include, but we believe it is up to schools to think about the needs of their pupils and the communities that they serve, and it is for them to decide what best to cover and how best to cover it within their curriculum.

My Lords, would the Minister agree with me that, however good schools’ PSHE programmes are—and some are excellent—schools cannot mop up all the ills of society? Would she further agree that this is a highly sensitive issue, which is about the law and violence against women, and therefore needs delivering to teachers and pupils in a sensitive and expert way by people such as the school nurse or a doctor? It is not a case that can be taken very lightly.

I entirely agree with the noble Baroness, which is why we shall be shortly publishing for the first time statutory multiagency guidance for front-line professionals on FGM specifically, which will apply to schools and children services as well as police and healthcare professionals. It is essential that everybody works together to support any young women who may be in this position and make sure that, as a community, all agencies are working together to help tackle this crime.

As noble Lords will be aware, protection orders were fast-tracked last summer to come into place before the summer holidays, so that any girls at risk could benefit from these new orders. Eighteen FGM protection orders were issued between July and September. That is the first set of data that we have.

My Lords, while individual prosecutions are matters for the Director of Public Prosecutions, are the Government satisfied that the law is adequate, and will they consider an investigation as to why there are so few prosecutions?

As I said, we will shortly issue the statutory multiagency guidance, which we believe will help teachers, for instance, and other professionals to be able to identify this risk more easily and therefore to work with the police. The Serious Crime Act 2015 introduced a new mandatory duty on teachers, social workers and health professionals to report to the police known cases of FGM involving victims under the age of 18. Again, we believe that reports of these cases should assist the police; I have also mentioned protection orders. Therefore, we are building a framework within which professionals can work to help to tackle this crime.

Does the noble Baroness know how much training the NHS gives to its front-line staff so that they are able to recognise this situation and deal with it?

As I say, we are introducing a range of statutory guidance. Since April 2015, the NHS has collected enhanced data on women and girls seen by the NHS who have been subject to FGM. The second quarter of this data from July to September 2015 reported that 17 girls under 18 had come to the attention of the NHS. Therefore, with the enhanced data collection, the guidance we are introducing and our attempt to join up the NHS with schools and the police, we are starting to see progress in helping professionals identify this issue.

The noble Baroness referred just now to the role of schools. When I represented a multicultural constituency in the other place, one of the things that used to concern me was the instance of girls being suddenly taken away for long holidays, and we tried very hard to raise this with schools to see whether they were being taken away for this purpose. It would be useful to know whether this is included in the guidance to teachers. I point out to those colleagues who have been in this House for quite a while that nobody here ever raised this issue for as long or as often as our late friend Baroness Rendell—Ruth Rendell. I suggest that we set up some initiative on FGM in Ruth’s name.

I will be very happy to take the noble Baroness’s suggestion back to the department. As regards the question she raised about teachers being able to identify this, I went on to the PSHE Association website to have a look at the section on FGM, and the issue that the noble Baroness raised is mentioned there, as are a number of other useful elements of guidance. As I have said, with new statutory guidance coming in and the updating of the safeguarding guidance for schools, we are attempting to get as much information to teachers as we can so that they can play their role in helping to protect young women.

My Lords, can I come back to PSHE? The Minister has highlighted its importance—indeed, the Government’s own website says how important it is. Will she confirm that PSHE has to be taught only in maintained schools, so that the 70% that are academies, as well as free schools, do not have to teach it? Does she not think, given the importance of PSHE and this issue, that it should be taught in all schools and that advice and guidance should be given to all schools?

We state clearly in the introduction to the national curriculum that we expect all schools to deliver high-quality PSHE. Of course, the noble Lord will be aware that, when inspecting, Ofsted considers how a school ensures the spiritual, moral, social and cultural needs of its pupils. Ofsted inspects all schools—maintained, academies and free schools—so this enables PSHE to be considered in a proportionate and integrated way as part of their inspection.

Female Genital Mutilation: International Action


Asked by

To ask Her Majesty’s Government what assessment they have made of the effectiveness of current campaigns and programmes sponsored and executed by western governments and international non-governmental organisations aimed at eliminating female genital mutilation and cutting practices in African countries.

My Lords, since 2008, the UN estimates that 13,000 communities representing 10 million people have declared that they will abandon FGM. DfID is the largest ever donor on FGM, investing £35 million over five years, and that support is accelerating the progress we have seen since the PM co-hosted the Girl Summit. Across Africa, women, politicians, young people and religious leaders are campaigning for a change, and we stand strong in our support.

My Lords, I thank the Minister for that reply. Since 1965, 24 of the 29 countries in which FGM practices are concentrated have enacted decrees or legislation related to outlawing them. Yet nearly 50 years later in Guinea, for example, 96% of girls and women between the ages of 15 and 49 are still suffering FGM, while 80% are victims in a further eight countries. In all, some 125 million girls and women born since 1965 have been abused in this manner. Given the overwhelming case for the abandonment of these practices at all levels and recognising the legal, social and moral norms that control them, what specific action are the Government taking to support UNICEF and other in-country programmes with human and financial resources?

My Lords, the noble Lord will be aware that in 2014 we co-hosted the Girl Summit with UNICEF. At that summit we secured 500 signatories to a charter and more than 170 commitments from Governments, civil society and individuals. We are putting £35 million in place over the next five years, but this is a deeply bedded social norm. It has been there a long time. It will take time for people to come to terms with removing it. We have seen progress. Since our summit, there have been summits in Bangladesh, Ethiopia and Uganda, and last year there was an African Union-led summit in Zambia.

My Lords, is the Minister aware that I worked as a nurse in Sudan? I saw the horrific effects of the most radical form of FGM, with agonising complications. I saw how many women, offered some amelioration—for example, following episiotomy for childbirth—refused help in terror of their husbands’ and families’ reactions. What more can be done to ensure that these DfID programmes effectively reach local communities and families, who are critical to the eradication of FGM? At present, many of these programmes do not reach grass-roots level.

My Lords, I know of the experience of the noble Baroness and the work that she does in this area. It is right and proper that we work with the countries where this is prevalent. If we are to change social norms, we need local communities on board with us. All our programmes in all the countries in which we operate put girls and women at the centre of everything we do.

My Lords, I remind the House of the work done by the noble Baroness, Lady Trumpington, who introduced the first legislation on this issue. Baroness Rendell then picked up the fact that people were being taken abroad outside our jurisdiction. She did wonderful work and put through the next part of the legislation.

I followed the noble Baroness, Lady Trumpington, on the United Nations Commission on the Status of Women, which is where the work started. It is clear from the time that she and I spent there that it takes a long time to change cultural attitudes—even in this country, which was the first to pass an equal opportunities Act. It all takes time but we must not give up. The young Kenyan girls who took a court case in their own country set an outstanding example.

My Lords, I pay tribute to my noble friends Lady Gardner and Lady Trumpington, and to Lady Rendell. By raising these issues consistently we are able to achieve some of the changes and an acceptance that we must do much more to get rid of this heinous crime. My noble friend Lady Gardner is absolutely right; we must continue to try to change something deeply embedded.

My Lords, does the Minister share my concern about the efforts made by UN member states to minimise the number of SDG indicators, possibly eliminate the FGM target altogether and retain the current restriction on measuring FGM in only what they call “relevant countries”? Does she agree that, if the FGM indicator is limited only to specific countries or eliminated completely, millions of women and girls will remain invisible? Data on the targets will not be collected and no one will know if states are making progress towards ending this vile process.

The UK fought hard for the universal acceptance of human rights—that they are for everyone—and this is a human right. The noble Baroness will therefore be aware that we will continue to ensure that there are indicators to reflect FGM.

My Lords, as the Minister will know, the Girl Generation was set up in 2014 by my noble friend Lady Featherstone, when she was a DfID Minister, to combat FGM in 17 countries—initially in Kenya, Zambia and Nigeria. What targets have now been set for the Girl Generation and how is DfID supporting them? What is DfID now doing to ensure that the targets are achieved given how important it is to protect these girls?

My Lords, I pay tribute to the noble Baroness, Lady Northover, for her work as a Minister to champion the issue of violence against women and girls. It is absolutely right that we continue to pursue this hard by monitoring, evaluating and finding ways of working to help Governments to enforce and put in place legislation, frameworks and policies. That will assist the work that was done by the noble Baronesses, Lady Featherstone and Lady Northover.

Airports: Expansion


Asked by

To ask Her Majesty’s Government whether they are fully committed to choosing either Heathrow or Gatwick for airport expansion, or are still considering other options.

My Lords, on 14 December 2015, the Government formally announced that they accepted the Airports Commission’s case for new runway capacity in the south-east, as well as the commission’s three shortlisted schemes; namely, additional runways at Gatwick or Heathrow, or an extension to the existing northern runway at Heathrow. The Government will not be considering any other options.

My Lords, I thank the Minister for that Answer. Unfortunately I am disappointed by it. There is some confusion in my mind, and perhaps in that of the Government as well, as to whether this airport expansion is primarily to provide extra capacity for the crowded south-east or whether it is to establish an up-to-date hub airport to rival those in Europe. If it is to establish a first-class, international hub airport, surely it is better located outside the south-east. Will the Government not consider Birmingham, linked of course to HS2? That option presents far fewer problems than those facing Heathrow and Gatwick; it is much closer to Britain’s centre of gravity and is half way to the aspirational northern powerhouse.

As far as the expansion of south-east capacity is concerned, the Government are committed to the findings of the Airports Commission. That is in no sense to take away from the importance of our regional airports. Indeed, all regional airports, including Birmingham, mentioned by the noble Earl, are already benefiting from increased investment and are an important part of UK plc’s competitive global offering across the world.

My Lords, given that this state of affairs has been arrived at after something like 20 years, is it now considered fairly urgent that we should think about a completely new airport?

I think that I have made the Government’s position quite clear. The commission was set up by the previous Government under the guidance of the current Prime Minister in 2012. It reported its findings. It was a comprehensive review. As I said in my earlier Answer, the Government are committed to its conclusions and the three options it presented, all being viable options. We will proceed on those. The commission also said that the decision needed to be made and the airport needed to be operating by 2030. That is certainly the timetable that the Government are committed to.

My Lords, is it not the case that the Airports Commission was set up by the previous Government as a means of keeping this particular ball in the air because the Government were not prepared to make a decision? That was at a direct cost of at least £20 million. The ball has now been kicked firmly into the long grass and every so often the Transport Secretary kicks it further away from a decision. If the Government really believe that the decision to increase airport capacity is urgent and important, how much longer will they dither over this issue because they do not want to make a political decision?

The Government have been quite clear: the reasons for further consideration included environmental issues such as air pollution—a subject close to the noble Lord’s heart. This is not about keeping things up in the air. On the contrary, it is about getting those things in the air down on the ground.

My Lords, should we not recollect that major international airlines cannot be compelled to fly into airports they do not wish to go to? Should we not all agree now that the alternatives to Heathrow are not Birmingham or Stansted, but Schiphol, Paris and Frankfurt? Either we can have the business in this country, in London, or it will go to the continent.

My noble friend raises an important point. On the first element, the commercial decisions on air slots are very much for the airlines to make. As for the competitiveness of London vis-à-vis competitors in Europe, that is one reason why the Government are committed to further expansion of air capacity in the south-east.

My Lords, has anyone actually asked passengers what they want? Has there been a recent independent survey of the views of passengers in the north and the Midlands? There is considerable resentment among both business and leisure passengers about the problems they face in travelling so far to reach a hub airport in the south of England.

On the subject of specific surveys, I will write to the noble Baroness about those two areas. However, as she is no doubt aware, Manchester, for example, will also benefit from £1 billion of investment over the next 10 years—and there are other regional airports. Indeed, I was looking forward to a question from the noble Lord, Lord McKenzie of Luton—but I may pre-empt that if I add that Luton, too, has benefited. Further to the noble Lord’s previous question, I am glad to say that my right honourable friend the Secretary of State recently visited Luton and saw the excellent facilities there.

My Lords, will the Government clarify the questions that they are now asking about extra runway capacity, and the options that they do not believe were fully addressed or answered in the Airports Commission report? Which bodies and organisations are they now asking to provide views and information on the questions that they are still asking?

As I have already said, some of the criticisms of the commission’s report were about environmental issues, particularly noise and air pollution—and those are part and parcel of the Government’s further considerations. All relevant bodies making representations will be part of that consultation process.

My Lords, can the Minister promise us faithfully that we will have a decision on expansion at Heathrow Airport after the elections for London Mayor?

I can assure the noble Baroness—I speak for all my noble friends on the Front Bench and beyond—that we always seek to give answers faithfully from this Dispatch Box.

Health: Zika Virus


Asked by

To ask Her Majesty’s Government what is their assessment of the World Health Organisation’s warning on the spread of the Zika virus.

My Lords, we welcome the WHO recommendations, and the Government are considering our response. PHE’s experts are liaising closely with WHO and other agencies to understand the developing evidence and give the best advice possible. Given the serious implications of a link with microcephaly, the current travel advice is highly precautionary. Those travelling to affected areas should review this advice, pregnant women should consider the need to travel and all travellers should take scrupulous bite avoidance measures.

I thank my noble friend for that reply. It is helpful to know that there is a rapid response call for research applications aimed at tackling the Zika virus. Does my noble friend agree that the immediate priority is to eliminate the species of mosquitoes which spread the virus? Will the Government support field trials with Latin American nations into the release of genetically modified non-replicating mosquitoes, as recommended by the Science and Technology Committee in December?

My Lords, I think we are the second biggest contributor of funds to WHO and have just contributed £6.2 million to its emergency contingency relief fund. I think that the work that we have done in the UK on developing genetically modified mosquitoes to combat this disease and other diseases spread by mosquitoes will almost certainly play a very major part as we go forward.

My Lords, since there is no prospect of an early vaccine to deal with Zika, is not the only show in town which could deliver an early answer to Zika the genetically modified mosquitoes to which the noble Earl, Lord Selborne, referred? This is a mosquito that has been modified so that its offspring die off before they can develop, and it is a mosquito that transmits both the dengue and the Zika virus. Since there has been astonishing success in the Oxitec company’s trials in parts of Brazil which, after the release of hundreds of millions of the modified mosquitoes, has virtually extinguished dengue, should the Government not support and fund extended trials by this company in Brazil? That would be extremely good not only for the reputation of British science but for the economy, since this is a field in which Britain leads the world.

There is no doubt that the work that we have done in this country on developing genetically modified mosquitoes will play a very large part in tackling Zika and other infectious diseases of this type. Sally Davies, the Chief Medical Officer, has convened a science committee which is meeting either today or tomorrow to assess the issues raised by the current outbreak. I am absolutely sure that she will be considering what the noble Lord has said as part of our response.

My Lords, obviously effective control is essential, but since the WHO declaration we have had news of a sexually transmitted case of the virus. What lessons are the department taking, or what can they take, from this in terms of guidance and action in this country, particularly for travellers?

My Lords, there has been one case where Zika may have been sexually transmitted—I use the words “may have been” advisedly because it is not proven. Indeed, the link between Zika and microcephaly is not yet scientifically proven. There seems to be a strong probability that that is the case, but we should bear in mind that Zika was first identified back in 1947 in Africa and since then there has been no such connection with microcephaly, although in Brazil there appears to be a very strong connection now. There has been one case in Texas, where there may have been sexual transmission and the advice for men who are sleeping with women who may become pregnant is to wear a condom.

My Lords, while absolutely agreeing that we should carry on supporting the science of genetically modified mosquitoes, it may be that mosquitoes that are already genetically modified for dengue can do the same job for Zika, but we do not know that. Much more important is the recent report and questions about the assessment of the spread of the Zika virus. The Minister has just referred to sexual transmission, but that applies to any bodily fluids, not just sexual transmission. The other worrying thing is that the common mosquitoes have now been found possibly to be infected by Zika. That is a much more worrying prospect, because they are much more widespread.

I understand that the common mosquito which we find in southern Europe could potentially carry Zika, which I think was reported in the Times today. There is as yet no evidence that it does carry Zika, but it is something that we need to watch very carefully.

My Lords, one of the problems of this illness is that four out of five people are asymptomatic—they have no symptoms. For many of the others, the symptoms are such that it is a very light cold or light flu. That is one of the problems with this illness.

With the Olympic Games coming up, are particular precautions being considered and are you in contact with the organisations dealing with travel to the Games?

Comprehensive travel advice is on a number of different websites. The Royal College of General Practitioners and the Royal College of Obstetricians and Gynaecologists have been notified and the information has been cascaded down, so I think that there will be enough travel advice as we near the Olympics.

My Lords, is the Minister aware that in Brazil around 80,000 women die from unsafe abortion because of the lack of provision there? This figure will surely increase as a result of this terrible disaster. Is there any way that our Government can put pressure on the Brazilian Government to allow safe abortion in that country?

My Lords, that strays slightly away from the brief that I have on the subject today. May I take that on consideration? I will raise it with my honourable friend in the other House, the Minister for Public Health.

My Lords, that is something that is under consideration at the moment. It varies from airline to airline—that is the truthful answer at the moment—but we are considering whether all flights from areas that have Zika virus should be sprayed.

Housing and Planning Bill

Order of Consideration Motion

Moved by

That it be an instruction to the Committee of the Whole House to which the Housing and Planning Bill has been committed that they consider the Bill in the following order:

Clauses 12 to 22, Schedule 1, Clauses 23 and 24, Schedule 2, Clause 25, Schedule 3, Clauses 26 to 61, Clauses 1 to 11, Clauses 62 to 90, Schedule 4, Clauses 91 to 97, Schedule 5, Clauses 98 to 110, Schedule 6, Clauses 111 to 113, Schedule 7, Clause 114, Schedule 8, Clauses 115 to 117, Schedule 9, Clauses 118 to 122, Schedule 10, Clauses 123 to 133, Schedule 11, Clauses 134 to 136, Schedule 12, Clauses 137 to 142, Schedule 13, Clauses 143 to 159, Schedule 14, Clauses 160 to 163, Schedule 15, Clauses 164 to 169, Schedule 16, Clauses 170 to 176, Schedules 17 and 18, Clauses 177 to 182, Schedule 19, Clauses 183 to 186, Schedule 20, Clauses 187 to 193, Title.

Motion agreed.

European Union: United Kingdom Renegotiation


My Lords, with the leave of the House I will now repeat a Statement made by my right honourable friend the Prime Minister in another place yesterday. The Statement is as follows.

“With permission, Mr Speaker, I would like to make a Statement on progress with our renegotiation. The House has now had the chance to study the documents published by the European Council yesterday. I believe that this is an important milestone in the process of reform, renegotiation and referendum that we set out in our manifesto, and which the Government are delivering. We have now legislated for that referendum and we are holding that renegotiation.

Let me set out the problems that we are trying to fix and the progress that we have made. First, we do not want to have our country bound up in an ever closer political union in Europe. We are a proud and independent nation, with proud, independent, democratic institutions that have served us well over the centuries. For us, Europe is about working together to advance our shared prosperity and shared security; it is not about being sucked into some kind of European superstate—not now, not ever.

The draft texts set out in full the special status accorded to the UK and clearly carve us out of further political integration. They actually go further to make it clear that EU countries do not even have to aim for a common destination. This is a formal recognition of the flexible Europe that Britain has long been arguing for. In keeping Britain out of ever closer union, I also wanted to strengthen the role of this House and all national parliaments, so we now have a proposal in the texts that if Brussels comes up with legislation that we do not want, we can get together with other parliaments and block it with a red card.

We have also proposed a new mechanism to finally enforce the principle of subsidiarity—a principle dear to this House—which states that, as far as possible, powers should sit here in this Parliament, not in Brussels. Every year the European Union has to go through the powers it exercises and work out which are no longer needed and should be returned to nation states.

Secondly, I said that we wanted to make Europe more competitive and deal with the rule-making and the bureaucracy that can cost jobs here in Britain and, indeed, across the European Union. We asked for commitments on all the areas central to European competitiveness. We want international trade deals signed, the single market completed and regulation stripped back. All these things are covered in the draft texts. There is a new proposal for specific targets to reduce the burdens on business in key sectors. This will particularly help small and medium-sized businesses, and there is a new mechanism to drive these targets through and cut the level of red tape year on year.

Thirdly, we are absolutely clear that Britain is going to keep the pound—in my view, for ever—but we need to be just as clear that we can keep the pound in a European Union that will be fair to our currency. Put simply: the EU must not become a euro-only club. If it does, it would not be a club for us, so we called for a series of principles to protect the single market for Britain. We said that there must be no discrimination against the pound, no disadvantage for businesses that use our currency, wherever they are located in the EU, and no option for Britain ever again to be forced to bail out eurozone countries. All these principles are reflected in the draft text, which is legally binding, and, again, there is a mechanism. Britain has the ability to act to uphold all these principles and protect our interests. We should be clear: British jobs depend on being able to trade on a level playing field within the European single market, whether in financial services or cars or anything else, so this plan, if agreed, will provide the strongest possible protection for Britain from discrimination and unfair rules and practices. For instance, never again could the EU try its so-called “location policy”—that the settling of complex trades in euros must take place only in eurozone countries. These principles would outlaw that sort of proposal. These are protections we could not have if Britain were outside the European Union.

Fourthly, we want to deal with the pressures of immigration, which have become too great. Of course, we need to do more to control migration from outside the European Union. We are doing that and we will be announcing more measures on that front, but we need to control migration from within the EU, too. The draft texts represent the strongest package we have ever had on tackling the abuse of free movement and closing down the back-door routes to Britain. It includes greater freedoms for Britain to act against fraud and prevent those who pose a genuine and serious threat from coming into this country. It includes a new law to overturn a decision by the European Court which has allowed thousands of illegal migrants to marry other EU nationals and acquire the right to stay in our country. It has been a source of perpetual frustration that we cannot impose our own immigration rules on third-country nationals coming from the European Union, but now, after the hard work of the Home Secretary, we have a proposal to put that right.

There are also new proposals to reduce the pull factor that our benefits system exerts across Europe by allowing instant access to welfare from the day someone arrives. People said that Europe would not even recognise that we had this problem, but the text explicitly recognises that welfare systems can act as an unnatural draw to come to this country. Our manifesto set out four objectives to solve this problem. We had already delivered on two of them within months of the general election. Already EU migrants will no longer be able to claim universal credit—the new unemployment benefit— while looking for work, and if those coming from the EU have not found work within six months, they can now be required to leave. Now, in these texts, we have secured proposals for the other two areas. If someone comes from another country in Europe, leaving their family at home, they will have their child benefit paid at the local rate, not at the generous British rate, and, crucially, we have made progress on reducing the draw of our generous in-work benefits. People said that it would be impossible to end the idea of something for nothing, and that a four-year restriction on benefits was completely out of the question. But that is now what is in the text—an emergency brake that will mean people coming to Britain from within the EU will have to wait four years until they have full access to our benefits. The European Commission has said very clearly that Britain already qualifies to use this mechanism, so, with the necessary legislation, we would be able to implement it shortly after the referendum.

Finally, let me be absolutely clear about the legal status of these changes that are now on offer. People said we would never get something that was legally binding—but this plan, if agreed, will be exactly that. These changes will be binding in international law, and will be deposited at the UN. They cannot be changed without the unanimous agreement of every EU country—and that includes Britain. So, when I said I wanted change that is legally binding and irreversible, that is what I have got; and, in key areas, treaty change is envisaged in these documents.

I believe we are making real progress in all four areas—but the process is far from over. There are details that still need to be pinned down and intense negotiations will take place to try and agree the deal with 27 other countries. It will require hard work, determination and patience to see it through. But I do believe that with these draft texts, and with all the work that we have done with our European partners, Britain is getting closer to the decision point. It is, of course, right that this House should debate these issues in detail. So in addition to this Statement, and of course a Statement following the Council later this month, the Government will also make time for a full day’s debate on the Floor of the House.

As we approach this choice, let me be clear about two things. First, I am not arguing, and I never will argue, that Britain could not survive outside the European Union. We are the fifth largest economy in the world and the biggest defence player in Europe, with one of the most extensive and influential diplomatic networks on the planet. The question is not could Britain succeed outside the European Union; it is how will we be most successful? How will Britain be most prosperous? How will we create the most jobs? How will we have the most influence on the rules that shape the global economy and affect us? How will we be most secure? I have always said that the best answers to those questions can be found within a reformed European Union. But let me say again, if we cannot secure these changes, I rule nothing out.

Secondly, even if we secure these changes, you will never hear me say that this organisation is now fixed—far from it. There will be many things that remain to be reformed and Britain would continue to lead the way. We would continue to make sure that Europe works for the countries of Europe, for the businesses of Europe, for the peoples of Europe and, crucially, for the British people who want to work, have security and get on, and make the most of their lives.

So, if we stay, Britain will be in there keeping a lid on the budget, protecting our rebate, stripping away unnecessary regulation and seeing through the commitments we have secured in this renegotiation. This will ensure that Britain can truly have the best of both worlds: in the parts of Europe that work for us, and out of those that do not; in the single market; free to travel around Europe; and part of an organisation where co-operation on security and trade can make Britain and all its partners safer and more prosperous, but with guarantees that we will never be part of the euro, never be part of Schengen, never be part of a European army, never be forced to bail out the eurozone with our taxpayers’ money, and never be part of a European superstate.

That is the prize on offer—a clear path that can lead to a fresh settlement for Britain in a reformed European Union: a settlement that will offer the best future for jobs, security and the strength of our country; a settlement which, as our manifesto promised nearly a year ago, will offer families in our country security at every stage of their lives. That is what we are fighting for, and I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I am grateful to the Leader of the House for repeating the Prime Minister’s Statement. I also thank the Government Chief Whip for extending the time for Back-Bench contributions. I know that the noble Lord understands the need for that and also for a more substantial debate on this matter in the near future.

Let me make it clear at the outset that we broadly welcome the Statement. I readily confess to some degree of relief that the Prime Minister is finally making at least some progress on his aim of seeking a new relationship with the European Union. I do not think I am alone in finding that the Prime Minister’s rhetoric has been, perhaps, the opposite of what one would normally expect from a good negotiator. This is not a game. This is not an issue in which internal party political divisions should have any role at all. The only objective must be the national interest: an interest that brings jobs, investment, prosperity and a continued influence in the world; greater protections for British workers and increased opportunities for our businesses; and that keeps us safer, both at home and abroad. What has been outlined so far appears to be a step in the right direction. However, as I think the Leader conceded, it is more of an agreement to agree than a detailed and finalised deal, but it is none the less welcome and we look forward to further clarification and expansion on the detail of how the proposed negotiation will work in practice.

We on these Benches welcome that important and hard-fought advances such as employment rights and improved environmental protections have not been negotiated away. They are tangible benefits for British citizens and it is right that they are protected. Whatever the future arrangements, I hope that the Prime Minister will ensure that British workers are never left behind in standards and rights at work.

I want to be clear that my party will campaign to keep the UK in the European Union, not least because we believe it is increasingly impossible for countries to be fortresses in our interconnected world. Many of the most serious challenges, including crime, terrorism and climate change, affect all countries and are best met by co-ordinated European and worldwide action.

Many noble Lords will recall the hugely informative debates we had on the coalition Government’s bizarre hokey-cokey of opting out then opting back in again on crime and criminal justice measures. It was clear then, and the Government had to concede, that meeting the challenges of serious and organised crime—drug trafficking, fraud, child abuse and paedophilia, and people trafficking—could effectively be tackled only through the EU. I remain of the view that one of the strongest cases for the European Union is the effectiveness of our co-operation on serious crime. The threats and challenges we face will not go away by voting to leave. That established co-operation means that we are better able to detect crime, bring criminals to justice and, therefore, protect our citizens.

It also illustrates one of the failures of politicians, and others, on this issue. There has been a complete inability to talk about the EU so that people outside Parliament know what we are talking about—even in the Statement today. For most people, an emergency brake is in a car. The language of EU directives, qualified majority voting and other terms that most people never normally use does not begin to explain why our membership is so important. We need to talk about the Europe-wide environmental measures that make our beaches and coastal waters cleaner and safer, about consumer protection to stop customers being ripped off, about rights at work, about jobs, about justice and about catching criminals. These are the issues that really touch people’s lives.

There is a huge challenge for all of us in this House and our colleagues in the other place, as well as our national media and opinion-formers. That challenge is illustrated by what could be described as the more colourful headlines, front pages and commentary that the Prime Minister has faced since his return. This debate is a once-in-a-generation opportunity for many millions of people, each with one equal vote, to have their say about our country’s future place in Europe and the world—although, sadly, not for the 16 and 17 year-olds whose future is dependent on the outcome of that vote. The debate should not be only one of persuasion. It should be one of education and providing straightforward, honest and accurate facts and allowing people to reach their own decisions.

Noble Lords will recall that during the passage of the European Union Referendum Bill, your Lordships’ House secured concessions from the Government on the importance of significant information provision in advance of the referendum, including agreement to report back on: the rights of individuals within the UK, including employment rights; the rights of EU citizens living in the UK; social and environmental legislation; law enforcement, security and justice; the effect of withdrawal on Gibraltar; the right to apply for financial support from EU structural funds; and support for agriculture and research—although, sadly, not our call for the Treasury to report on the financial impact of the UK voting to leave. That is such an important issue and I ask the Leader to raise this with the Prime Minister and the Chancellor in the interests of a balanced and informed debate. If I have one plea for politicians and the media, it is that this debate should provide more light than heat. As Thomas Jefferson said:

“The cornerstone of democracy rests on the foundation of an educated electorate”.

Finally, as my colleague the leader of the Opposition in the other place told MPs yesterday:

“The Labour party is committed to keeping Britain in the European Union because we believe it is the best … framework for European trade and co-operation in the 21st century, and in the best interests of people in this country”.—[Official Report, Commons, 3/2/16; col. 928.]

No doubt, many in your Lordships’ House—on all sides—are of the same view. I trust also that everyone in this House understands that, should the UK vote to leave the EU, our country, our companies, our universities and our people will still have to follow its rules when doing business with its institutions or when travelling to the remaining member states—all without any further say in making those rules.

Reform is a constant process. It is not an event. The most effective way to reform an institution is through patience, explanation, persuasion and the building of alliances—often across and outside the normal political boundaries. That is something that noble Lords understand well.

It would be helpful to your Lordships’ House if the Leader of the House could today provide some of the detail that so far is missing or set out the timetable in which that will be provided and your Lordships’ House given an opportunity to debate it. The sooner the proposed reforms are agreed and clarified, the sooner we can step up the campaign to keep Britain in Europe and end the damaging uncertainty that has been created around our continued membership.

My Lords, I, like the Leader of the Opposition, thank the Leader of the House for repeating the Prime Minister’s Statement and also for the arrangements for Back-Benchers to raise questions on this important issue. In his Statement, the Prime Minister said that a full day’s debate would take place following the Statement after the European Council later this month in government time in the other place. I hope that the noble Baroness will be able to make a similar commitment with regard to a debate in your Lordships’ House.

The draft plan before us represents meaningful reforms that can strengthen our economic co-operation with Europe, can bring jobs and growth to the United Kingdom and indeed, as the noble Baroness said in repeating the Prime Minister’s Statement, will provide strong protection for Britain from discrimination and unfair rules and practices. Indeed, the provision prohibiting discrimination on the basis of official currency or legal tender seems to be a particularly strong passage in the texts that have been released.

The Prime Minister referred to the legally binding nature of any agreement. Will the noble Baroness the Leader of the House amplify that when she responds? Would these agreements be legally binding and come into force when the United Kingdom notified the Council that there had been a decision in the United Kingdom to remain in the European Union?

While we on these Benches were somewhat sceptical of the political motives of the Prime Minister in seeking a referendum, it is nevertheless a reality. My party will use the campaign to deploy a positive case for Britain remaining within the European Union. We stand united against the idea that Britain should be isolated, sidelined or alone. We believe that, together in Europe, the United Kingdom will be a stronger and more thriving nation.

In the European Union, Britain is part of the world’s largest single market, allowing our businesses to grow and prosper. In the European Union, neighbours and allies support each other in what remains the world’s most successful project in peace. In the European Union, our citizens have more opportunities to work, to travel and to learn than ever before, ensuring that our children and grandchildren have ever greater prospects and opportunities. In the European Union, together we can protect the natural environment and tackle climate change more effectively. In the European Union, together we are stronger against terrorism and against those who despise our liberal and modern way of life, and we can together tackle more effectively the criminal gangs who peddle illegal drugs and weapons and engage in human trafficking.

These are important arguments that we need to deploy in the referendum. Does the noble Baroness the Leader of the House therefore accept that, while the reforms in this particular package are welcome, the referendum debate itself will need to go beyond the details of the renegotiation and take into account the wider benefits of European Union membership and the costs of leaving? Will the noble Baroness confirm that the Government’s message during the referendum campaign will not just be about the finer details of this package, but about the further and more important values that are at stake?

In the light of the changes made in your Lordships’ House to the European Union Referendum Bill, will the Government ensure that there is a realistic assessment of what Brexit would look like and its disadvantages for the United Kingdom? Can the noble Baroness assure your Lordships’ House that the reports on the consequences of withdrawal and alternatives to membership will provide a meaningful analysis?

My Lords, I was very pleased to repeat my right honourable friend’s Statement about this important issue of Britain’s role in, and relationship with, Europe. We were elected as a Government to lead a process of reform and renegotiation and to hold a referendum on the EU. Many said that what we had set out to do would be impossible, yet we have already legislated for that referendum and we now have a draft text on the table that puts forward significant reforms in each of the four areas that are of greatest concern to the British people. The important thing to stress is that this is about addressing their concerns and the things that they have highlighted, all too often, over a very long time about Britain’s relationship with the European Union.

Before I address some of the specific points that were raised by the noble Baroness and the noble and learned Lord, I would say that, contrary to the way in which the noble Baroness described my right honourable friend’s approach to his responsibility, he has been very careful in his approach and very diplomatic. He had a plan which he was keen to put forward, negotiate over, hopefully achieve agreement on and then implement. What he has achieved so far is something that no other British Prime Minister has yet achieved in terms of coming to this Parliament and saying that there is the chance now to bring back powers to the United Kingdom from Europe. That is incredibly important.

The noble Baroness referred to one of the things we already achieved in the coalition Government: the justice and home affairs opt-outs. That was unprecedented in terms of us renegotiating our agreement with Europe on something that was very important. Both she and the noble and learned Lord talked about the use of language and about putting forward the positive case for Britain’s membership of Europe during the referendum campaign. That is clearly an important aspect of any campaign. The Statement from the Prime Minister that I have repeated was very clear that there are real benefits to the United Kingdom being in Europe, which we would lose if we were no longer part of Europe. He was also very clear in his Statement that it would be possible for the UK to survive outside of the European Union.

The noble Baroness asked about details missing from the documents that have been published and put forward by the Commission. This is a live negotiation, and those details are still to be discussed and debated. The Prime Minister is hosting the Syria conference today, which he will take as an opportunity to talk to other Heads of Government. He is travelling to Europe at the end of this week, and there will be another European Council on 18 and 19 February. A lot of this is still very much in play and up for negotiation, so I am not able to provide more detail on anything that is missing.

However, I assure the noble Baroness and the noble and learned Lord that, after the next European Council, I will, as is customary, repeat the Prime Minister’s Statement in this House. We do not yet know whether the Prime Minister will reach an agreement at that European Council, but in his Statement yesterday he committed to a full day’s debate in the other place after an agreement is reached. I am quite confident that we will be able to secure some time, in government time, for a debate in this House to discuss whatever the Prime Minister is able to agree, although I stress that we cannot be sure that that will happen at the European Council that is taking place later on this month.

The noble and learned Lord asked me about the legal status of the documents. It is very clear, because Mr Tusk has made it clear, that these are legally binding documents; they are irreversible. If the Prime Minister reaches an agreement with the other member states that he wishes to put forward to the people of this country, for them to decide then that they want to remain in Europe, after that decision is made then they will take operational effect—they will become operative—immediately. There are some elements that will be legally binding straight away. The deal will take effect straight away.

There will be some measures that are identified in the draft deal that will require some secondary legislation, perhaps through the European Parliament, but because of the way in which the Prime Minister has approached his renegotiation with Europe, a lot of the different institutions and people involved in this process have already come out and said that they are ready to respond and to do what is necessary in this case—in that case, in the European Parliament. We are confident that we will be able to make full progress should that deal be made, should the British people decide that that is what they want, because of the way in which people have already responded.

My Lords, we are now into an extended period of Q&A of 40 minutes. I recommend to the House that we be succinct in the questions that we lay and that we go round the House in our customary fashion. This should enable everybody to make a point.

My Lords, is my noble friend aware that none of the important objectives set out in the Prime Minister’s Bloomberg speech three years ago has been achieved? He committed himself then to securing a “fundamental, far-reaching” reform of the European Union. These inconsequential scraps are certainly not that. He committed himself to the process of returning powers from the Union to the individual member states. That has not been achieved. The principle of the acquis communautaire remains in place, as does the passerelle clause of the Lisbon treaty which entrenches it.

He promised full-on treaty change. No such treaty change has been secured. On ever closer union, is my noble friend aware that the Solemn Declaration on European Union agreed in Stuttgart in 1983 explicitly commits the European Union to the ever closer union of the member states of the EU? Did the Prime Minister seek to have the Stuttgart declaration revoked, and, if not, why not?

I have huge respect for my noble friend and for his position and views on Britain’s relationship with the European Union. He has been involved in lots of negotiations in Europe over a significant period of time. From my perspective as a relative newcomer to this kind of thing and as a member of the Government, I look at what the right honourable David Cameron, our Prime Minister, has achieved. Let us not forget that it is Donald Tusk who has published this set of draft proposals, not the Prime Minister. Let us look at what he has come forward with. The Prime Minister has achieved something that nobody before him has achieved. On ever closer union, we will see for the first time institutions in Europe that we have criticised time and again for using the treaties and their preambles to try to extend the scope and power of union no longer able to do that. I think that is a massive step forward.

My Lords, as chairman of the European Union Select Committee, I shall focus on the role of national parliaments. The text proposes that the Council will discontinue consideration of draft legislation in the event that reasoned opinions are sent representing more than 55% of the votes allocated to national parliaments. That is certainly welcome, as far as it goes. How will the new procedure interact with the existing reasoned opinion procedure, which will be considered by the House in its next business today? How can it be ensured that this new tool is of practical as well as purely symbolic value? What steps will be taken to put in place an effective mechanism for national parliaments to work together?

Last week in evidence to my committee the Foreign Secretary stressed the need to establish a more effective support machinery to co-ordinate the work of national parliaments. Can the noble Baroness confirm that the Government will actively work on such developments alongside this draft agreement?

The noble Lord is right to point out that the next business of your Lordships’ House is on a reasoned opinion, using one of the mechanisms that currently exist for sovereign parliaments to make their views known. The draft text proposes that parliaments have much greater power, with a red card, than they have currently. Clearly, a lot of the detail is still to be sorted out on mechanisms that would be used and how the red card would interplay with the yellow card. I think it is safe to assume that having at parliaments’ disposal a power that they do not currently have to block legislation would be a strong incentive to them to be more active than they might have been when they had at their disposal only a yellow card. My right honourable friend the Foreign Secretary is right to suggest that there might be greater co-ordination between parliaments across Europe to ensure that they get to the minimum level to have real and dramatic effect with the use of this new power.

My Lords, does the noble Baroness accept that many of us on this side of the House welcome the progress that the Prime Minister has made towards enabling him to argue the case for remaining in Europe in the coming referendum? However, if he is to win that case, would he take advice from Members of this House that he should not spend his time, as he did yesterday in the other place, trying to rally Eurosceptics against Brexit? Rather, he should make a positive and patriotic case for Britain’s membership of the EU. This should not be a “project fear”, but a “project hope”.

I am grateful to the noble Lord for offering his support to the Prime Minister, although I do not agree with how he described the Prime Minister’s approach to this. The Prime Minister has put forward a series of changes that address real concerns of the British people—British people who see real value in being a member of the European Union, but, quite frankly, are a bit fed up with it and the way it operates. The Prime Minister set out to renegotiate some of the terms that address those matters, whether it is around welfare or powers taken away from us. If he gets an agreement that he is satisfied is a good deal for the British people, then in the course of the next few months he will want to talk to those who are uncertain, a bit unsure and a bit undecided. Being successful in trying to persuade people requires any of us who seek to influence the views of others to be respectful of those who are currently unsure which way they might want to vote. We very much hope, whatever it is that the Prime Minister is battling for, that they vote with him.

My Lords, can I ask my noble friend two precise and related questions? Yesterday the Prime Minister said in the other place that the emergency brake would be applied “shortly after the referendum”. First, does that mean that no combination of other member states can stop us applying that emergency brake in any circumstances? Secondly, he said that where benefits are paid in respect of beneficiaries not in the United Kingdom, they will be paid,

“at the local rate, not at the generous British rate”.—[Official Report, Commons, 3/2/16; col. 926.]

Will the computer at the department of pensions be up to doing that job?

I am happy to reassure my noble friend about two things on the emergency brake. First, the Commission has made it clear that in its view the emergency brake would apply immediately, assuming that the British people decide that they want to remain in Europe. It is worth reminding ourselves that not only has the Commission said that but President Juncker also said yesterday that this was a good deal in response to the failure of the previous Labour Government to protect the UK from an increase in immigration from the accession countries when they had opportunity to do so. This has been signalled as a ready-to-apply and will apply immediately if this is what the British people vote for.

Secondly, as far as benefits at local rate are concerned, the Prime Minister outlined our response and reaction to what is in the Tusk proposal. Clearly, we are confident that if that is what is in the deal and package we would be able to administer that arrangement.

My Lords, will the noble Baroness the Leader confirm that it is the United Kingdom that is the member of the European Union and that it does not matter if any principality, province or nation of the United Kingdom votes differently? It is the decision of the people of the whole of the United Kingdom that will be decisive in the referendum.

My Lords, I thank the noble Baroness the Leader of the House and the other two Front-Bench spokesmen for their statements. I agree that the Statement marks a significant shift on all four of the Government’s priorities in the renegotiation. I also welcome the noble Baroness’s statement about the legally binding nature of the package that the President of the European Council—not the Commission, by the way—has put on the table. This differentiates it very much from the Stuttgart declaration, which never was and is not legally binding nor does it have any legal force.

First, can the noble Baroness say that the use of the deposit at the United Nations of a legally binding text which was first introduced for Denmark at the time of the Maastricht treaty resulted in all the commitments in its renegotiation being honoured in the spirit and the letter? That is a very important point.

Secondly, while a good deal of mockery is sometimes unleashed on the complexity of this document, particularly in the pages of the press, it is not avoidable for a legal document of this nature not to be complex. If we look at any of the Acts passed by this House, we see that they are not light reading either. The reason is the same: they have to be legally applicable and deal with the legal complexities of the situation that they are set up to face. We should broaden the debate beyond this package when the campaign starts because there are far more important issues even than these to be discussed, but I welcome this Statement.

I am grateful to the noble Lord, both for his contribution and for picking up on my misuse of “Commission” when I should have been saying “Council”. He offers a great deal more experience of the European Union and its institutions, the European Council and indeed the United Nations. I am happy to confirm what he just said, particularly his comparison to Denmark. What is proposed in this document is very much in line with what is in place for Denmark, which has existed for over 20 years and remains absolutely legally binding.

My Lords, the Prime Minister says that we will never be part of a European superstate, but what about the acquis communautaire? It is intrinsic to the treaty and has to be addressed. What about the court, which always supports the acquis? What about the polemics of this? The draft agreement in front of us today has in it the objective of not only a single economic state but a banking centralised state, and therefore a fiscal centralised state, and therefore a federal state. The BBC hinted last night that there was a secret plan to deal with these issues, which are fundamental so would require major treaty changes. If that is true, I would be very interested to hear more about this, as I am sure the House would. Is such a plan being worked up on the side? If so, when will we hear about it?

What is recognised in the documents that have been published is that treaty change may be required in some areas but, until that treaty change occurs, the text will be legally binding; as the noble Lord, Lord Hannay, said, it will be deposited in the United Nations. This is not about avoiding treaty change but about legally binding irreversible decisions, acknowledging that, where treaty change is necessary, that will happen at the appropriate point. The decision document—the first and lengthiest of the documents published by Mr Tusk—makes clear that the European Court of Justice will be required to take account of that document when it is considering any of its judgments.

My Lords, there have been quite a number of Eurosceptics who over the past 48 hours have criticised the Prime Minister for not bringing back a provision that would enable our Parliament to opt out of any EU legislation that it wanted whenever it wanted to. We should be absolutely clear about one thing: they are entirely and bitterly opposed to our being part of the single market, whether as a member of the European Union itself or by negotiating, if that proved possible, some access to the single market from outside. The single market is a single regulatory space. If individual members of the single market could pick and choose what they wanted at any time, it would not be a single market; it would be 28 separate and very fragmented markets. If we tried to negotiate access to that market from outside, not only would we not be able to pick and choose in that way—we would have to accept all the rules and regulations—but from then on we would have no role whatever in formulating those rules and in the legislative process.

The noble Lord is certainly right to point out that if the United Kingdom was not a member of the European Union, the way in which it would access the single market would be substantially different, because other countries with a different kind of relationship with the European Union might be able to establish the advantages but do not have an opportunity to influence the rules and how they apply. However, there are people in this House, the other House and the country at large who have long-standing principled views about the European Union that I very much respect. For the first time in over 40 years, we are giving everyone the chance to have their say and decide whether they want to vote us in or out of Europe. I do not want to diminish anyone who has a different view from someone else on this. As I said to the noble Lord, Lord Liddle, during any campaign on this it will be important that we communicate fairly and effectively with those who have yet to make up their mind about the benefits and otherwise of what is proposed.

My Lords, the Government assume that our membership of the EU single market has been good for our economy and that we benefit from the foreign trade arrangements that the Commission is able to secure because of its “clout”. I therefore ask the Government whether they have read a game-changing new analysis from Civitas entitled Myth and Paradox of the Single Market by Michael Burrage. If not, will they do so? It shows that four much smaller countries—Chile, Korea, Singapore and Switzerland—have done hugely better from their free trade deals than we have with the Commission negotiating our free trade arrangements on our behalf. Of course, if we left the political construct of the European Union we would keep our free trade with the rest of the single market—which is all we need—because we are its largest client. They need our free trade much more than we need theirs so it will continue.

I do not have time to deal with the shattering uselessness of the rest of the Prime Minister’s deal, which I understand we shall debate properly soon, but I thought I would ask this question in the mean time, and I look forward to the noble Baroness’s reply.

I am confident that those who are closely involved in this process have reviewed every text, document and so forth. I personally have not; I hope that the noble Lord will forgive me. The Prime Minister has made clear in his Statement that there are great benefits to being in the European Union that include access to trade. He is also clear that the United Kingdom could survive outside the European Union, but he wants to secure Britain’s membership in a reformed Europe—to negotiate something that would stack up for the people of this country and was then, in the end, for them to decide on.

My Lords, is not the fair and sensible verdict on this deal process so far that it is so far, so good? However, will the Minister accept that the really key word in the whole of this debate, and in the processes to discuss in the European Union, is “reform”, which lies at the centre of what I understand my right honourable friend the Prime Minister to be trying to achieve? Would it therefore not be best if London and the UK became—far more than at present—a strong source of ideas for the revitalisation and fundamental reinvigoration of the deeply troubled European Union rather than just a demander of concessions? Is that not the way we now want to go?

As always, my noble friend has spoken wise words, in that this is not just about trying to get concessions. It is about starting a reform process in Europe. I disagreed with what the noble Baroness said about the way the Prime Minister had approached this because, by starting this, he has kick-started within Europe a recognition that that institution has to change for all its members to prosper. More can be done. He hopes that he can achieve an agreement that will lead to us staying in a reformed Europe and for that to be the beginning of the process, not the end.

I wonder if the noble Baroness is aware that, for those of us listening to the Statement today who were involved in the 1975 referendum, there was a strong sense of déjà vu as the same arguments went on after Prime Minister Wilson’s renegotiations? I am reminded of my great predecessor Jo Grimond saying, when we were haggling over the terms of entry into the European Community, that it was as though at the time of the Reformation people were not able to make up their minds until they knew what price the monasteries were likely to fetch. When we get to the referendum, can we operate at a slightly higher level?

My Lords, is it not clear that the European Union is incapable of dealing with the greatest challenges which face it— monetary policy and migration—and that it is in decline relative to the global economy? Is it not also evident that supranational political institutions that disregard national sentiment do not endure and that the European Union fails to command the loyalty of its constituent peoples and can therefore be expected to disintegrate, just as did the Austro-Hungarian Empire, the Soviet Union and Yugoslavia? Should not British policy accord with the march of history?

That was an interesting lesson in history, but at the moment we are concentrating on trying to get a better deal for the British people as regards their current membership of Europe, which I will focus my remarks on today.

Will my noble friend agree that there is an increasing danger—I drew attention to it on Second Reading of what is now the European Union Referendum Act—that voters will express their views as to whether the negotiations have been a success rather than on the more fundamental issues, which will otherwise get crowded out of the debate, and that we will lose the vote in favour of remaining in as a result? Also, should we not be too preoccupied with the rhetoric about ever-closer union when the two main planks of European policy, the euro single currency and free movement of people, are tearing the Union apart? We ought to try to get reform on those matters. However, having said that, the Prime Minister is making progress and I hope it will continue.

I am very grateful to my noble friend for his comments and his support. I agree that people will consider how to vote based on their view of the success of renegotiation—although I keep having to preface my remarks by saying that the Prime Minister has not yet reached an agreement with Europe; as he said in his Statement, he has not yet ruled anything out as regards the next steps. Notwithstanding the remarks of the noble Lord, Lord Steel, about a higher level, I am sure that we will see lots of debates about the detail. Some things will be of particular concern to certain people, while for many others there will be an instinctive reaction to the debate rather than attention to the detail, and we will have to cover all people’s interests in this important matter.

My Lords, whereas British membership of the European Union costs in net terms about £10 billion now, if we left, presumably we would still want to be a member of the single market. After all, half our national trade is there, but on the Norway model—the only rational basis for that membership—that would cost about £7.5 billion. Will the Government explain that over the coming weeks? Admittedly it is less, but not that much less, and we would be bound by future rules determined in Brussels, without our Ministers accountable to our Parliament and our elected parliamentarians accountable to their voters in Britain being able to influence them. That does not seem much of a bargain—we would pay but have no say. Does the Minister agree?

I agree with the noble Lord’s analysis. When we get to the campaigning stage, it will be important to help people to understand that there are most definitely alternative models, but that they come with costs and disadvantages that people will need to be aware of if those are the routes they want to pursue.

My Lords, does my noble friend agree that the fact that our Prime Minister has had to spend months going all round Europe to secure a minor change to our benefit legislation indicates just how far we have lost the ability to determine our own affairs, which should be at the heart of the referendum campaign? Does she agree with Sir Stephen Nickell, from the Office for Budget Responsibility, that even the plan to stop access to in-work benefits would have “limited impact”? How far does she expect that plan to enable the Government to meet their target of reducing overall immigration to the tens of thousands from a net figure of 380,000? What is the Government’s estimate of the reduction in immigration that will be achieved by that benefit change?

The first thing I would say to my noble friend is that the Prime Minister has spent several months in Europe, negotiating a new deal for Britain. Some of the changes we have already made to welfare benefits and how they apply to people coming from European Union countries do not require any involvement of the European Union, so much so that we have got on and put them in place. Since the election, any European Union citizen coming to this country and who seeks a job will not be able to claim jobseeker’s allowance. If, after six months, they have not found a job, they will be required to leave. These are two of the four commitments that the Prime Minister made in our manifesto.

The other changes covered by the draft proposal set out in the documents address the remaining issues by introducing a sense of fairness that people in this country feel is needed. They are about ensuring that people are not able to take out before they have put in. My noble friend mentioned evidence that was given by Sir Stephen Nickell of the OBR about the effect on immigration. The value of these welfare payments to an average family is about £6,000, so people coming to this country get £6,000 immediately. This is quite a strong incentive for some. While I might not be able to provide a figure from this Dispatch Box today as to how many might be affected if this were no longer available, I am sure it would affect some people.

My Lords, when will the Government support and promote the European Union and the single market which was a creation of this House and Lord Cockfield? We now have another finance commissioner in Brussels promoting the Capital Markets Union, which is the subject of the next debate. We could say to the British people that not only are we promoting small businesses having access to money and supporting British firms and the consumer by taking advantage of it, but we are also promoting the economy and the City of London for the benefit of all. For goodness’ sake, speak up.

I agree with everything that the noble Lord has said and I think the Prime Minister’s Statement reflects that. It reflects the fact that there is real advantage to the United Kingdom in being a member of the European Union and we will keep on saying so unless and until he gets to a point where he is not able to agree new terms with the European Union and he decides that it is not in the UK’s best interests to pursue it.

The noble Lord is right. If we are able to achieve what the Prime Minister hopes to achieve, then the noble Lord can rest assured that there will be a positive case made for the benefits of Europe.

My Lords, I, too, welcome the Statement. I believe that the Prime Minister and his fellow Heads of Government all deserve congratulations on having reached a position where the essential objectives of the United Kingdom Government are well on the way to being achieved, while the essential fabric of the European Union is maintained. This is a considerable achievement.

Does my noble friend agree that it is in the interests of the United Kingdom—whether we are in the European Union or whether we are outside—to have unrestricted access to the single market? Does she agree that this is an enduring British interest? If we are to have unrestricted access to the single market, this will have to be taken into account in relation to any agreement on free movement of capital or free movement of people. What has been achieved in relation to immigration is that a formula has been worked out which will enable Britain to do what it needs to do to restrict immigration while not undermining the essential principles of the single market.

Yes, I agree with my noble friend’s assessment. He is quite right that access to the single market is not just about access to trade. It brings with it many other benefits. To partly pick up on my answer to the noble Lord, Lord Harrison, my noble friend chaired one of the cross-party committees that reported on TTIP, which we know is ongoing. We do not have that trade agreement in place yet, but this House, cross-party, came out very much in support of TTIP. It is of huge benefit to all members of the European Union. I would point to it as a reason for us wanting to stay in the European Union and I very much hope that all sides of the House agree. I note that the leader of the Opposition in another place was very sceptical and indeed critical of TTIP, but I hope that it is something on which we can join together in promoting as a good thing for Britain.

Does the Minister agree that in main street UK this debate and the whole issue of reform will be reduced to a grubby little debate about immigration instead of what reform of this amazing group of 520 million people should be, which is how to enable southern Europe to make enough money to compete with northern Europe, and how to enable the whole lot to be globally competitive in Asia’s century? Why does not reform from the Prime Minister mean that instead of using our taxes to subsidise someone growing olives in Greece we use the same money to skill them up so that they would be welcome immigrants in our country because they would qualify for a job, or they would be qualified in their own country to attract inward investment to work there? If we continue to base southern economies in Europe on exporting olives and importing BMWs, they will go bust.

I am not sure that I agree with the noble Lord that the debate on the referendum will resort to being purely about immigration. Indeed, we all have a responsibility to ensure that it does not. In the answers that I have given to other questions already today, I hope that I have highlighted and reassured noble Lords that there is a positive case to be made, and we would have to make it if that is what we were promoting.

However, while I very much understand where the noble Lord is coming from and the arguments that he had just made, it is important that we do not diminish the concerns of people of this country about the current situation on immigration from Europe to the United Kingdom by saying that it is not something that should be addressed. It is part of the package of measures that the Prime Minister sought to negotiate because it concerns people. It concerns them for good reason, because there is a sense of unfairness and injustice about the way that the benefit system works for those who come here from other countries. At the same time, I am also clear that the people of this country are very positive about the important contribution that is made by immigrants from wherever they come.

Would the Minister agree that the debate will soon have to look at the historic aspirations of the British people? The Minister referred two or three times to the yellow and red card systems—a football metaphor. Taking that metaphor a stage further, would she not agree that the people on the terraces are not little Englanders—to take England for a moment, as opposed to Scotland, Wales and Northern Ireland? They want to be in the Champions League just as at the same time, they want to be in the Premier League. There is no contradiction between the two.

My Lords, as is clear from the exchanges today, and yesterday in another place, many parliamentarians want to play a vigorous part in the forthcoming referendum campaign. Can the Minister guarantee that the timetable of the two Houses will be arranged so that there are not impossible clashes, and there is a proper opportunity for parliamentarians on both sides to conduct an elevated and proper campaign?

We shall of course ensure what we can in providing opportunities for people to debate in this Chamber, but clearly it will be up to individuals how they use their own time during the referendum campaign.

My Lords, on the increased subsidiarity provisions that have been agreed, so that some decisions that have in the past been taken at European level will now be taken within the UK, can the Minister confirm that decisions on devolved matters will henceforward be taken in the National Assembly for Wales, the Scottish Parliament and the Northern Ireland Assembly?

I am afraid I shall have to write to the noble Lord on that one. It may be a bit of a technicality. Maybe we just have not got that far in the negotiations; I do not know. But if I can offer any more information in writing, of course I will.

European Union Subsidiarity Assessment: Electoral Law of the EU (EUC Report)

Motion to Take Note

Moved by

That this House takes note of the Report from the European Union Committee on the European Parliament Proposal for a Council decision adopting the provisions amending the Act concerning the election of the members of the European Parliament by direct universal suffrage (7th Report, HL Paper 87).

My Lords, I shall speak to both the Motions in my name on the Order Paper. Before I begin, may I place on the record my thanks, and that of my committee, for the work of the incredible staff who serve the committee—particularly Tim Mitchell, a truly talented lawyer, who drafted this report?

In 2009 the treaty of Lisbon introduced new procedures that gave national parliaments the responsibility of policing the application to European Union legislative proposals of the EU’s principle of subsidiarity. It is a responsibility that I, and my colleagues on the EU Select Committee and its six sub-committees, take very seriously. The draft report that forms the basis of this debate was produced by the European Union Justice Sub-Committee, which I chair, and subsequently approved by the European Union Select Committee.

The report recommends that the House should submit to the European Union institutions, under Protocol 2 of the EU treaties, a reasoned opinion stating that it considers that the European Parliament’s proposal for reforming the EU’s electoral law does not comply with the principle of subsidiarity. This is a rather timely matter, coming just after the recent debate.

This is the eighth time since 2009 that the European Union Select Committee has recommended this course of action to the House. Unusually, though, this is the first time that the committee has recommended that a subsidiarity reasoned opinion be issued against a legislative proposal brought forward by the European Parliament. That has never been done before.

As the report explains,

“The principle of subsidiarity provides that, in policy areas which do not fall within the exclusive competence of the European Union, but where competence is shared with Member States, the Union can act”—

the following words are a quotation from Article 5 of the Treaty on European Union—

“‘only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States’”.

That, of course, is the principle of subsidiarity. In this way, in order to comply with the principle of subsidiarity, European Union action must be both necessary and add value, as compared to action at the member state level.

The European Parliament agreed this particular significant legislative proposal on electoral reform on 11 November, and sent it to the UK Parliament on 11 December. The intention behind the proposal is to reform the European Parliament’s electoral procedures before the 2019 elections. To this end, the European Parliament has proposed a number of new rules and a range of amendments to the existing EU legislation governing elections to the European Parliament. Somewhat surprisingly, given the power in the treaty under which the proposal has been brought forward, it also includes provisions seeking to clarify the Parliament’s role in appointing the President of the European Commission.

The proposed legislation has been brought forward by the European Parliament under a specific legal basis in the EU treaties calling on it to do so. In late November, as required by the treaties, the European Parliament sent its proposal to the Council. The member states must now agree to the proposal unanimously. Therefore, national vetoes will apply. Key aspects of the proposal are summarised briefly in paragraphs five and six of the report.

In addition to the committee’s two substantive subsidiarity concerns, to which I will turn in a moment, a number of important procedural requirements have not been followed by the European Parliament. These include a requirement to communicate legislative proposals to all national parliaments. This, in turn, sets the timetable for the issuing of reasoned opinions by national parliaments. But it appears that the Dutch Tweede Kammer, the House of Representatives in the bicameral Dutch Parliament, has only very recently received notification of this proposal—indeed, in the last few weeks. Therefore, the application of the usual eight-week window within which national parliaments can issue reasoned opinions is unclear. Does it date from then or back to the date when we, the UK Parliament, received it? Nevertheless, in the interests of issuing a reasoned opinion in the time, we are proceeding on the basis that the deadline expires tomorrow—5 February.

In addition, the European Parliament has failed to accompany its proposed legislation with a,

“detailed statement making it possible to appraise compliance with the principles of subsidiarity and proportionality”.

That detailed statement is a requirement by the subsidiarity protocol to the treaties. To our mind, that is a significant omission and makes it very difficult for individual national parliaments to undertake their treaty-imposed obligation to assess the compliance of EU legislative proposals with subsidiarity. I say that as someone who is supportive of the European Union, but it really does fail to live by the standards it has set itself. The absence of a detailed statement should be a matter of real concern to this House.

The assumption underpinning the principle of subsidiarity is that decisions to legislate should be taken as closely as possible to the European Union citizen. The report notes:

“Any departure from this presumption should, therefore, be justified with sufficient detail and clarity so that EU citizens, and their representatives in national parliaments, can understand the”,

reasons for EU action. The Parliament’s failure in this instance makes any assessment virtually impossible. That was the view taken by my committee and endorsed by the full EU Select Committee of this House.

The report argues in paragraphs 12 to 15 that,

“this omission constitutes a clear failure to comply with the essential procedural requirements in the Subsidiarity Protocol”.

The report notes that such a procedural failure is also,

“a ground for judicial review under EU law”.

The report addresses, further to these procedural matters, two aspects of the proposal that my sub-committee believes are difficult to justify in subsidiarity terms—a difficulty exacerbated by the Parliament’s procedural failures. The proposed rules governing the selection of candidates for election to the European Parliament, in particular the imposition of a gender balance requirement, have caused us some reflection. I should make it clear that most of us are wholly supportive of gender balance and want to see that come into being, but this is not the power in the treaty with which to do it. In our view, it really should not be done at the European Union level but by member states in a way that is appropriate for the different nations.

The other matter of concern is the proposed expansion of the existing right to vote in European elections for all EU citizens resident in the EU, to encompass all EU citizens regardless of where they live—in or outside the EU. This seems to be creating an unlimited right to vote in the European Union for citizens, wherever they live in the world, for ever. As we know, European Union citizens who are nationals of a member state are usually confined to a 15-year limit when living abroad to exercise the right to vote. We feel that that incredible extension should be taken at the national level.

The report argues that the European Parliament’s failure to produce the requisite detailed subsidiarity statement, taken in conjunction with the two provisions I have just mentioned, justifies this House’s conclusion that the proposal does not comply with the principle of subsidiarity. Once the preliminary issue of subsidiarity has been concluded, my sub-committee will soon begin its formal scrutiny of this proposal.

What is the opinion of the noble Baroness—I am not sure of this myself, which is why I am asking the question—on the process of renegotiation the Prime Minister is currently involved in, whereby what is now called the yellow card would be substituted by a red card? Would it mean that national parliaments could block this proposal if they deemed it the right thing to do?

The situation is difficult to imagine. What should be happening here is very clear: a statement should normally be made explaining the justification, but subsidiarity is the primary principle that should be applied. Our concern was that not only was there a failure in terms of the normal proprieties, but that some of the proposals did not fit with subsidiarity at all in any event. We have not moved on to the second stage, but for the moment, I would rather leave the question of whether introducing a red card would somehow mean that one would be able to prevent it automatically. I am sure that my advisers would have an answer to that. We feel that this is precisely the kind of failure that gives the European Union a bad name. We are calling them on it, because if anything upsets citizens in the member states, it is the failure of the Union itself—here, it is the Parliament—to live by its own rules. Really, it is about conforming to the rulebook and that is the reason for this Motion today.

Once the preliminary issue of subsidiarity has been concluded, we will scrutinise the proposals in the normal way. But we are really concerned about the EU’s failure to live up to the standards it has set itself. That is the sort of thing that discredits the Union and causes alarm to many people within the United Kingdom just now—and I say that as someone who is a great supporter of the European Union.

I commend this report to the House and I beg to move.

My Lords, I am a member of the European Union Select Committee. Unfortunately, I was not present at the Select Committee’s discussion of this proposal; if I had been, I would have said some of the things I am going to say now.

I, of course, do not in any way apologise for, accept, or try to defend what appear to have been administrative mistakes in not sending documents in time to this Parliament or to the Tweede Kamer in the Netherlands; I know nothing about that. Clearly, if people have been remiss in not meeting deadlines, they should be held to account. I totally agree with my noble friend’s comments on that point. However, I am much more concerned with the substantive point she makes, and particularly with the second resolution, which I oppose in principle. I hope that I will have a chance to vote against it but I do not suppose that I will. However, I certainly do not want it said that it went through this House without any voice of dissent at all.

In the Motion before your Lordships, the second resolution says that this proposal of the European Parliament should be set aside on the ground of subsidiarity. It seems to me that any democratic parliament worthy of its name is accountable to its own electorate. Any democratic parliament worthy of its name is responsible, and should be responsible, for its own rules and procedures. It should not be beholden to any organisation outside. It should not be under the command of any outside authority or it is not a democratic parliament. In this case, of course, the European Parliament was set up by the member states through the treaty—we all know that. All parliaments, by definition, have to be set up by somebody other than themselves. This Parliament, which we have the honour to serve, was set up by kings of England—Edward I and subsequent monarchs—who summoned it. That does not mean to say that we expect the monarch or, indeed, the politically elected Executive branch—the Prime Minister or the Cabinet—to fix our rules of procedure or our methods of operation. It would be scandalous for anybody to suggest that and everybody would quite rightly think that that was a threat to the democratic independence of this House. No one has, of course, ever suggested that.

On that basis, it is perfectly reasonable that the European Parliament should make its own proposals for its own future procedures, including for its own electoral system. That is totally right, and it is right that it should do it. Above all, the application of the subsidiarity principle against its doing so seems to me entirely absurd. Of course, only the European Parliament is in a position to judge the functionality of any set of rules or procedures in relation to itself. To ask 28 different national parliaments to make their judgment is crazy. It would probably take 1,000 years for them all to agree on the rules to be adopted and they would not be in a position to assess the functionality and merits of any proposals of that kind in the way that people sitting in the European Parliament would be able to do. Therefore, on both pragmatic grounds and grounds of principle, I oppose this resolution. The principle of subsidiarity—indeed, my noble friend has just cited that principle—deems that matters should be decided at the European Union level only when they cannot be better decided at the level of the member states. I think I have said enough to indicate that this matter certainly could not be effectively decided at the level of the member states—that would be an absurdity. It must be decided at the centre by the European Parliament itself. On that basis, I oppose the second resolution.

My Lords, I thank the noble Baroness for the report which her sub-committee prepared for my EU Select Committee. I echo her words of thanks to members of that committee and to the excellent staff in drawing this together. It will already be clear from the exchanges that this is an interesting and, to some extent, unprecedented, coincidence in matters connected with process and substance. What we have heard so far has clearly shown deficiencies in a procedure in which, in fairness to the European Parliament—to which I will return in a moment—it has relatively new experience as a co-legislator. Therefore, we can perhaps condone the explanation relating to fault for this matter, although we should not allow it to go unchallenged.

I was not minded to speak in this debate—and will do so only briefly—had it not been for the contribution of the noble Lord, Lord Davies of Stamford. He and I have known each other for quite a long time. I have huge respect for him and very much enjoy and value his contributions to our Select Committee. As he rightly said, he was not available on the relevant occasion. However, it would have been more helpful had he shared his concerns and dissent with the chairman of the sub-committee and/or myself. With pre-notification, I am sure that we would have done our best not to warn him off but at least to have seen whether we could accommodate those concerns or reflect them in our report. As noble Lords present who have had experience of negotiation will know, we are in the position where in effect a late card has been played and it is a little difficult to handle it at this stage.

I apologise for any discourtesy but, as soon as I saw this resolution on the Order Paper, I mentioned to my noble friend my opposition to it and invited her to make any comments that she wished to make. She made no comments to me on that occasion and I therefore assumed that she did not wish to have a discussion with me on the subject, but I would have been delighted to do so.

My Lords, we are now, as it were, in the Chamber and we need to take the argument as it goes. However, for the avoidance of doubt—I hope this reassures the chair of the sub-committee—if any noble Lord is minded to take the temperature of the House, I am very much inclined to defend the sub-committee’s recommendation. I put that on the record.

However, let us take that as past. I add two other points. We have a Motion for a reasoned opinion. We have good reasons for asking for that. Indeed, we made it clear in the report we prepared some years ago for your Lordships’ House on the role of national parliaments—that has already been touched on in relation to the current European negotiations—that a reasoned opinion deserves a reasoned response. In entering a reasoned opinion we seek to enter a dialogue with, and gain an explanation from, the European Parliament, not with the purpose of subverting this move but of getting it into the right order with the right conclusion—no more and no less than that.

That leads me to my final point. When we debated this matter in the Select Committee, I was concerned to make it clear to its members that I would not like it to be seen as an oblique or indirect attack on the European Parliament itself. Some people in these Chambers seek to downplay the role of the European Parliament and even, occasionally, to question its legitimacy. I do not share that view. My view of parliamentary sovereignty is that it is better to have two levels of application and scrutiny than only one. I think that we have a joint and complementary role. I would not claim any great virtue in it but I have laboured long and hard to try to dispel any illusion that we are in any sense at war with Members of the European Parliament and its leadership. This is, I hope, a friendly discussion about procedure and a slightly more substantive one about the levels at which we take this argument forward. It is not a declaration of war or an attempt to create difficulty. I very much commend our report to the House.

My Lords, I had not planned to speak in this debate but the intervention of the noble Lord, Lord Davies of Stamford, provoked me to add my tuppence worth. I should clarify to the House that I speak in my capacity as the chairman of another sub-committee of the EU Select Committee—the sub-committee on financial affairs. It is true that the noble Lord, Lord Davies of Stamford, holds original, interesting and enormously important views, from which certainly my sub-committee benefits every week—week in and week out—and we are very grateful for his presence there.

I, too, was not present when this matter was discussed and when I saw it on the Order Paper I took it upon myself to find out what it was about. I came to the view that—as the noble Baroness, Lady Kennedy of The Shaws, and the chairman of the EU Select Committee, the noble Lord, Lord Boswell, have said—it was not a provocative gesture but the utilisation of a mechanism that has been hard fought for by this Parliament. This mechanism should improve dialogue and make us co-operate better, because it is an early warning system. It allows us to say, “Hang on, there is an issue here and we need to discuss it”.

I am slightly disappointed that the noble Lord, Lord Davies of Stamford, did not suggest to me that he had opinions on this. I would, of course, have fed them into discussions with the noble Lord, Lord Boswell. Speaking only for myself, but as a member of the EU Select Committee, I absolutely support the noble Baroness, Lady Kennedy of The Shaws.

My Lords, I speak as a member of the EU sub-committee on justice. I, too, pay tribute to our chairman, the noble Baroness, Lady Kennedy of The Shaws, and to our advisers, who have been brilliant. There is very little to add to what has been said but I want to say something about why we felt this was so important.

One argument worth adding is an emotional one. A degree of irritation was felt at the report coming out just before Christmas at a time when parliaments were going in to recess around Europe and there was not time to respond. We have heard that both Dutch Houses did not get it, as far as we can see. We did get it but with very short notice, hence the rush to bring it to your Lordships’ House. So I think there is a degree of irritation.

This is a procedural issue. Like the noble Baroness, Lady Kennedy, I am rather sympathetic to the report—at least to the matters within on gender equality. I think that that is great but it is not the point we were looking at. It is important to emphasise that we all felt that at a time when there is considerable criticism of the European Parliament and of European institutions more generally, it would have been better—hence this iterative process we hope to engage in—had they stuck to their procedures so that we could stick to ours. We were unanimous on this and I think that for all of us that was the strong argument. Therefore, I think that this should be supported.

My Lords, unlike the previous speakers I am not a member of the EU Select Committee or its sub-committee. But I was a Member of the European Parliament for 10 years and during that time served on the Legal Affairs Committee and the Constitutional Affairs Committee. It is a truism that it is very important that the European Union, and the European Parliament within it, works on the basis of conferred competencies. In other words, it can only do what it is permitted to do by the treaties that set the institutions up.

As I mentioned, I served a considerable number of years on the Constitutional Affairs Committee of the EP. It is one of its characteristics that in a chamber of enthusiastic pro-Europeans, it is one of the most enthusiastic parts. We saw only a few weeks ago, in the discussions on tax credits between this House and the other place, that parliaments are always angling to gain a bit of territory. You see this in a pronounced form from time to time in the European Parliament. But the important point about this proposal was mentioned at the outset by the noble Baroness: subsidiarity has nothing to do with the merits of the subject in question. The only issue is whether the European Parliament, in its proposals, which are after all not legislation but only draft legislation, has overreached itself. Having looked at it—although not at great length—I think there is a strong case for saying it has.

A separate but important aspect is whether the appropriate procedures have been adhered to. It seems pretty clear that they have not. Therefore, we are looking at a proposal from the European Parliament in the European legislative system, which, as currently drafted, breaches the principle of subsidiarity and which, in any event, has been brought forward in a flawed manner.

My Lords, I am a member of the sub-committee and I would like to put on record how good it is to serve on a committee chaired by my noble friend. She is a very effective chair and I think everybody on the committee recognises that and is rather inspired by her from time to time. It can be quite entertaining to watch her irresistible charm being put to the cruellest effect.

This report is very important. Of course, all of us who serve on committees that produce reports think that every report is important. But this is a particularly significant one because it touches on much wider issues, which are very close to the current negotiations led by our Prime Minister. I will touch on some of those wider issues.

History is a long process over many decades and centuries. It will examine the proposition that Europe might have had a more effective and powerful story had it gone for a confederal as distinct from a federal approach. Sometimes, what confederations produce has stronger meaning than top-down federal institutions. But that will be resolved in history. It just leaves me to say that I do not believe that the negotiations in which our Prime Minister is involved will be anything like the end of the story. This debate will go on for a long time. Indeed, in much of the evidence that we took this kept coming up as a reality.

I am totally convinced that strong parliaments come from struggle. If we look at our own Parliament, we see that a great number of struggles led to its evolution. We like to talk about it being the most successful parliamentary system in the world. We would do just as well to remember our forebears who struggled, and fought on occasion, to make that a possibility. There is an inevitable struggle going on within the history of the European Union. The struggle is for the kind of Parliament we want. That will go on. If the Parliament is to be effective and to mean anything, it will create awkward occasions. But that does not mean we have to succumb to everything it says. Its recommendations will always be stronger if they have been thoroughly tested. If they do not stand up and are rejected, in the long run that will be a good thing for the evolution of the Parliament itself. The distinguished chair of the EU Select Committee made the point—and I am very glad that he did—that we are not in a war but in a meaningful debate about strengthening institutions. So there our report is highly relevant and should be taken very seriously.

However, there is another issue. I do not know what the perfect description of democracy is and I always feel a bit concerned about people who think they do, because the whole concept of democracy is being tested all the time and going through evolution and change. But for democracy to be successful it must be about empowering citizens—empowering people to be part of the process of the formation of policy that affects their lives. That is what it is about, and that means accountability is very important. One of the fundamental weaknesses of the European Parliament is that it is too remote from people.

I therefore look at the proposition of the European Parliament itself and say that I do not think it is helpful. Should we not be looking instead at how we strengthen the indirect representation of parliaments at the European level? How can a hard-working Member of the European Parliament, many of whom work very hard and with great dedication—the noble Lord, Lord Inglewood, was no exception in this respect—on a whole range of issues at the European level with which they are confronted, be effectively part of the politics of the community in which they are living? The noble Lord, Lord Inglewood, was a very good exception because he was very much part of the politics of the community in which he lives—I know because I live adjacently to it. But it is asking a hell of a lot.

Similarly, how do you breed a sense of relationship to the big issues that are coming before Europe if national parliaments have no direct feeling of responsibility for Europe? They can have the luxury of being negative, rather than facing up to the responsibility of making a positive contribution. There is a lot to be thought through here. The European Parliament has been getting a bit ahead of the game on this one and may actually be kicking into its own goal—well, perhaps not its own goal as an institution, because it may have institutional ambitions, but in terms of what it is theoretically there to achieve.

I am very glad to have been part of this. It is always extremely challenging for somebody who is not a lawyer to sit on a committee on which there are so many effective lawyers arguing so well, but it is an extremely stimulating committee on which to serve, and our chairmanship is tremendous and has a great strength about it, and is all the time facilitating our work. I hope the House will take this report very seriously and endorse it.

My Lords, I, too, have the honour of being a member of the sub-committee and I entirely agree with what the noble Lord, Lord Judd, said about our marvellous chair. I will spare her blushes and not repeat it—he put it far better than I would anyway.

As another non-lawyer on the committee, perhaps it is helpful for me simply to put succinctly what I believe this matter is about. A case for subsidiarity was not made. We are asking for one to be made. It is really that simple and if, rather to my surprise, this does test the mood of the House, I hope we will all support that proposition.

My Lords, I speak on this subject for the very first time on behalf of the party. Having spent 15 years in the European Parliament, it is a great privilege. The European Union Committee is regarded very highly by the Parliament, the Commission and the Council. Therefore, I see absolutely no reason why a reasoned opinion should not be sent. It would certainly be welcomed by the Council and the Commission.

The noble Lord, Lord Inglewood, put his finger right on it. What we are dealing with is an own-initiative report of the Constitutional Affairs Committee. Like the Legal Affairs Committee and various other committees, when it is not taken too seriously it jumps ahead of itself and puts forward its wish list to the European Parliament. There are some excellent recommendations in the report and I urge your Lordships to read it, as well as the draft proposal, which is annexed. Interestingly, this wish list had to be deferred from going to plenary after it was voted on in committee because there was not enough widespread support for it to gain a majority. It therefore went to the Strasbourg plenary in November.

I congratulate my noble friend Lady Kennedy on her chairmanship of the committee and absolutely endorse her reference to the excellent work done by the staff of that committee and, indeed, by the staff who serve us throughout the House. I pay tribute to the noble Lord, Lord Boswell, for his chairmanship of the EU Select Committee. During my 15 years in the Parliament, whenever the European Union Committee visited, it was taken seriously by all Members across the political spectrum.

In this instance, we have an own-initiative report that was agreed at the plenary and was duly sent to the Commission, the Council and the President of the Parliament. There was reference earlier to whether a red card would apply after the Prime Minister’s completed negotiations. A red card operates now, not for the Parliament but indirectly because the Westminster Parliament can make its views known to the Minister and the Minister will then vote against or for in committee. This proposal, if it is to be amended, will have to be agreed unanimously. Interestingly, as I said, there are some good proposals and some that are perhaps indicative of the European Parliament jumping ahead of itself. One is to shift from unanimity to qualified majority voting.

I also advise your Lordships that under the leadership of Dame Glenis Wilmott, the Labour Member of the European Parliament voted against the report, for a number of reasons: ideas of transnational lists—not national or regional but pan-European; internet voting; pan-European party names and logos on the ballot papers; and issues over the single candidate for the EU Commission President. As my noble friend Lord Judd said, all parliaments—particularly the European Parliament and the European institutions, which are so defamed and misrepresented, certainly in the British media—need to make themselves less remote. Indeed, in the body of the report which goes to make up the amended Council decision, that is the stated intention.

Issues of gender equality were mentioned. But I should point out that the proposal calls for gender equality on the list and not in the make-up of Members going to the Parliament. That is to be decided by the voters, whether the lists are open or closed. It also calls for greater openness and transparency in how parties actually select their candidates. That is to be welcomed. It also recognises that as the Parliament, and indeed the Union, has grown in size, it needs to do more to connect with its citizens and the concept of European citizenship.

It is not my intention to detain your Lordships further but I want to make these closing points. As I said, it is an own-initiative report. The moment the clock starts ticking vis-à-vis consultation is when the Commission or the Council produces its draft and then sends it back to the European Parliament to be amended. Thus, the clock starts ticking on consultation and spreading the document further afield than the Commission, the Council and the Parliament.

I welcome the reasoned opinion. It is a good, proactive measure, again signalling the importance of this Parliament not just to subsidiarity and proportionality. Equally, it warns governments, including our own, about how we believe they should proceed when amending the Council decision on European elections. Therefore, I wholeheartedly endorse the work of the committees. I endorse both Motions before us and thank noble Lords for being so patient as I have rambled through my 15 years of experience. I hope I have put it to some good use.

My Lords, the noble Lord, Lord Cashman, did not ramble at all. He was very eloquent. I thank the European Union Committee for its report and, much more importantly, for its work in the round. The list of your Lordships who devote time and energy to its work is long, but I thank them all, in particular my noble friend Lord Boswell and the noble Baroness, Lady Kennedy of The Shaws. This committee is a shining example of this House at its very best, picking to pieces legislation and exorcising the devil from the detail.

Before turning to the specific details of this issue, I shall put it in context—context of critical importance. Over the weekend, I reminded myself of public opinion of the European Parliament, since this seems to be the nub of the issue that the proposals are trying to address. The European Parliament is, according to the Parliament itself, suffering from a problem: declining participation rates in its elections. In the early 1980s, voter turnout was over 65%; in the last elections, it had fallen to beneath 42%.

It is worth noting, too, what voters think of the Parliament. Over the weekend I spent a few hours looking in the bowels of the European Parliament’s website. According to its November Eurobarometer survey, while seven out of 10 voters think that it plays an important role in running the EU, just one in four voters has a positive view of the Parliament. Those who do not trust the European Parliament outnumber those who trust it. The main reason given for not trusting the European Parliament is that it is,

“too far away from ordinary citizens”,

as the noble Lord, Lord Judd, said. I say this without any glee or satisfaction, but this is the worrying backdrop to the proposals for the reform of European law that the Parliament has itself proposed.

As has been said, these are proposals from some of those in the European Parliament. They believe that this voter apathy and mistrust can be tackled in part by changing how the elections themselves are conducted. They are perfectly entitled to their views and I do not wish to impugn their motives. It is always worth considering whether voter engagement might be improved by changing electoral processes. However, I question, gently, as did the noble Lord, Lord Judd, whether this should be the priority of the European Parliament now, with all the other enormous problems that we are facing.

Consider what voters across Europe have told the European Commission are their priorities. According to polls conducted for the Commission itself last year, immigration, the state of the economy and unemployment are voters’ top three priorities. A relentless focus on identifying credible solutions to these problems in a way that respects national sovereignty is the way to increase public engagement and trust in the European Union.

This brings me to the proposals themselves. As I was reading them, the wise words of the Dutch Government,

“European where necessary, national where possible”,

were ringing in my ears. It is not necessary for Europe to micromanage the system for European elections, whereas it is both possible and desirable for national governments to do so. Unsurprisingly therefore, the Government do not agree with these proposals as they stand. For example, there is no public support for details of European political parties to appear on ballot papers, or for harmonised quotas of women candidates at European elections. Such provisions on electoral law should be a matter for national parliaments and individual political parties.

The Government therefore share the concern of the committee that the proposals do not comply with the principles of subsidiarity and that the issues that they are designed to address should be decided at a national level and not at European level. As the members of the committee have pointed out, there are concerns with the level at which the action is proposed, concerns on whether the measures suggested are proportionate to the issues being addressed and concerns as to their added value.

I shall focus briefly on two particular proposals that the committee has highlighted. The European Parliament has proposed that the lists that the political parties put forward at European elections should ensure gender equality. Like the noble Baroness, Lady Kennedy, the Government believe that democratic institutions make the best decisions when they have a mix of people with different skills, backgrounds and experiences from across the country. We must ensure that women are better represented across all walks of life. The proportion of women in the British MEP group and that among MPs at Westminster have risen steadily over the years and I hope and expect that they will keep rising in the future. The Government do not, however, consider that it would be right to mandate a legal quota in order to effect change. Nor would it be right to install a one-size-fits-all solution for all countries and all political parties within them.

It is also proposed that EU citizens, including those living or working in a third country, should be able to vote in European elections. Of course, UK law already provides that British citizens living abroad—whether in another member state or otherwise—may register to vote in European elections in the UK for a maximum of 15 years after they were last registered to vote in the UK. The same time limit applies to voting in UK parliamentary elections. The Government are committed to scrapping the rule that bars British citizens who have lived abroad for more than 15 years from voting and will introduce stand-alone legislation to deliver this as a permanent change in due course. However, the Government share the committee’s concern that this sort of issue should be decided at a national level.

I shall also comment briefly on the European Parliament’s proposed changes to the way that the President of the European Commission is selected—the so-called Spitzenkandidaten process. The position of President of the European Commission is obviously important, so changes in this area need to be forensically scrutinised. If there are to be changes to the way the President of the Commission is selected, these changes must be seen as wanted and necessary by all member states. Consensus among member states is absolutely vital. The Government remain of the view that selection of the Commission President should remain a European Council decision and based in current EU law. The European Parliament has the right to draw up proposals under Article 223(1) of the Treaty on the Functioning of the European Union regarding the election of its members and it is within its rights to propose measures relating to that. However, it is the scope of these measures, both individually and as a whole, that is problematic where they breach subsidiarity.

Finally, there is the issue of the veto. All member states would need to approve the proposals in order for them to take effect. Perhaps anticipating some nations’ opposition to these proposals and their tenor, draft Article 14 proposes to remove the veto for these matters. This, too, is unacceptable, as it would be wholly inappropriate for issues such as these to be decided by QMV.

Therefore, the Government wholeheartedly share the committee’s concerns on subsidiarity, both in terms of the content of the proposal and as regards procedural aspects. An important part of ensuring compliance with subsidiarity is the requirement for EU institutions to provide a robust assessment and justification for why an objective can be better achieved at EU level. As the committee has highlighted in its report, the case has not been made.

It is worth noting that the UK Government are not alone in having reservations regarding these proposals. During early discussions, other member states have expressed concerns on these proposals. Some 16 chambers from 10 member states have signed a letter to the European Parliament expressing their concerns on procedure regarding national parliaments. Similarly, a number of parliaments are considering issuing reasoned opinions on these measures.

All too often, the EU has exercised power in areas where decision-making could and should be done at a national, regional or local government level without interfering with the operation of the single market or the effective functioning of the EU. The EU must respect the layers of government that are closest and most accountable to European citizens, and national parliaments have a key role to play in ensuring that happens.

In conclusion, politicians across Europe wish to increase political engagement and trust in politics. This Government believe that the way to do this is by strengthening the role of this Parliament and of all national parliaments. Europe should focus on advancing our prosperity and security—the issues that citizens care about. For these reasons, the Government cannot and will not support the draft proposals that the committee has so expertly scrutinised.

My Lords, I thank all my noble friends for their participation in this debate. We have learned a lot about the importance of dialogue, which is the message that comes through from the Motion.

My noble friend Lord Davies mentioned to me last night that he would be opposing the second Motion. We did not have any discussions about it, because I was speaking to amendments to the Immigration Bill and it was not a time when I could enter into a discussion with him. However, I hope that, having been absent from the discussion in the Select Committee, he has been persuaded after having had the benefit of hearing the good reasons why we reached the conclusion that there should be a reasoned opinion and why the report was created in the way that it was.

As the noble Lord, Lord Boswell, said, this is not about being antagonistic towards the European Parliament but about pointing out why procedure matters. It is very important for the relationship between member states and the Parliament in the European Union. These ways of working are important and it is how you inspire trust. I hope that the House will support the Motion and that my noble friend Lord Davies will, too.

Motion agreed.

European Union Subsidiarity Assessment: Electoral Law of the European Union

Motion to Resolve

Moved by

To resolve that this House considers that the European Parliament Proposal for a Council decision adopting the provisions amending the Act concerning the election of the members of the European Parliament by direct universal suffrage does not comply with the principle of subsidiarity, for the reasons set out in the 7th Report from the European Union Committee (HL Paper 87); and, in accordance with article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the Parliaments to forward this reasoned opinion to the Presidents of the European institutions.

The question is that the second Motion on the Order Paper in the name of the noble Baroness, Lady Kennedy of The Shaws, be agreed to. As many as are of that opinion will say content.

Motion agreed.

Capital Markets Union: A Welcome Start (EUC Report)

Motion to Take Note

Moved by

That this House takes note of the Report from the European Union Committee Capital Markets Union: a welcome start (11th Report, Session 2014–15, HL Paper 139).

My Lords, I am delighted to introduce this EU Committee report, Capital Markets Union: A Welcome Start. A year and a day ago, the noble Lord, Lord Hill of Oareford, gave evidence to the EU Economic and Financial Affairs Sub-Committee—which I then had the honour of chairing—in advance of the publication of the European Commission’s Green Paper Building a Capital Markets Union on 18 February 2015. We undertook a short inquiry into the Green Paper, of which this report is the result. The report is based on our evidence session with the noble Lord, Lord Hill, and on a discussion among interested parties on 10 February. Incidentally, Jonathan Faull, who was then the right-hand person of Commissioner Barnier, participated in that discussion. I thank Katie Kochmann, who was our policy adviser, for convening that very important discussion, and John Turner and Stuart Stoner, who have been the clerks of the committee. I am also grateful to the noble Baroness, Lady Falkner of Margravine, for allowing me to speak today, and to the noble Lord, Lord Boswell of Aynho, who I know cannot stay for the whole debate because he is going to another part of Europe—deepest Northamptonshire.

Capital markets provide, among other things, an alternative to bank lending for business. The Green Paper stressed that the market was fragmented, leading to overreliance on banks and problems for small businesses in accessing funding. Indeed, the noble Lord, Lord Hill, told us that,

“the purpose of Capital Markets Union is to make it easier to link savings to growth and to channel savings from anywhere in the EU to be invested in businesses anywhere in the EU. The goal is a true Single Market in capital”.

The Green Paper makes many references to the fact that, in the United States, capital markets make up a higher proportion of the borrowing and lending market. By contrast, in Europe, bank-based funding makes up the majority of those channels into the economy. The key theme of capital markets union is about rebalancing and generating greater diversification of funding channels. As indicated by the noble Lord, Lord Hill, from the beginning the process would be legislation-light and involve reviewing legislation, proposing it only where necessary. Might the Minister reflect on whether that has been achieved, as we are in midstream? Perhaps he could also think about the Dutch presidency, which has made this a focus of its six months. I would be grateful if the Minister could tell us of any discussions he has had with his Dutch friends.

As well as suggesting ways to diversify financing sources, the CMU Green Paper suggests methods to reduce fragmentation in the financial markets, to strengthen cross-border capital flows—incidentally, only 6% of capital flows at the moment are encouraged by cross-border financing—and to improve access to finance for businesses, especially of course for small businesses. I wonder again whether the Minister will reflect on the importance of small businesses, which I think we have not always permitted, allowed or released into the workings of the European Union single market.

The paper identifies challenges such as the fact that investment in Europe remains heavily reliant on banks—something like 80% of finance in Europe is drawn from banks, whereas in the United States more like 80% is drawn from the capital markets. That is a very important difference. What more has been done to reduce the barriers and make the rules and market practices, which differ for certain financial products across the European Union, more helpful? There is also of course the inhibiting cultural element in that shareholders and corporate debt buyers rarely invest across borders. Again, what more can we do about that?

As the title of the report suggests, the committee welcomed the proposal of the noble Lord, Lord Hill, and, later, the Green Paper. We concluded that the proposals could,

“provide an opportunity to create a … Single Market in capital by diversifying funding and improving investment opportunities across the EU”.

We also noted that:

“The proposals aim to spread and mitigate risk throughout the financial system, while at the same time tackling … regulatory and administrative barriers and the cultural obstacles to growth”,

which I have talked about before. We also said:

“We particularly welcome the commitment to ensuring that Capital Markets Union is for all 28 Member States”,

which is very important for us now, especially in the Government’s negotiations, which are coming to some kind of fruition, and not just for the eurozone countries. In addition, we noted that a fully developed capital markets union would help to absorb any future asymmetric shocks across the union that might be prompted, thereby, of course, reducing the vulnerability of the European Union economy.

The Commission advocated a bottom-up rather than a top-down approach, consulting so-called shareholders widely. It also advocated a gradual process over a number of years, with the first stage being introduced through a capital markets union action plan later in 2015. That action plan was indeed published in October last year on the basis of responses made to the Commission’s consultation, among which our report figured.

I will not enumerate all the actions proposed in the plan but will talk briefly about some of those which have been introduced. Again, I encourage the Minister perhaps to reflect on the many actions of those he would seek to enhance and endorse. The action plan recognises that banks are lenders to a significant proportion of the economy and act as intermediaries in capital markets, and therefore will play a central role in capital markets union. The Commission has therefore introduced a securitisations regulation with the aim of creating a framework for simple, transparent and, indeed, standardised European securitisation to free up capacity on banks’ balance sheets and provide access to investment opportunities for long-term investors.

When we took evidence last February, we heard from the noble Baroness, Lady Bowles of Berkhamsted. I am so pleased that she is contributing today, as she has spent five years saving British bacon in her role as the chair of the appropriate European Parliament committee. She told us that securitisation had not been particularly problematic in the European Union but had suffered reputational damage because of the US subprime crisis. I look forward to her comments on that. The European securitisation market had regrettably shrunk in terms of issuance volume from €367 billion in 2009 down to €156 billion in 2014, with barely half of that volume placed with investors.

We therefore welcomed the priority placed by the Commission on building a high-quality securitisation market on the grounds that these markets had a key role to play in managing and transferring risk in the financial system and lowering the costs of funding and restoring growth and jobs to the top of the agenda. We cautioned, however, that there were obstacles to achieving greater standardisation and transparency for small business securitisations thanks to the intrinsic informational asymmetry. We need a more common and recognised system across what is actually being offered.

The proposed securitisations regulation was the first legislative action emanating from the CMU action plan to be introduced, and a general approach was reached in Council before Christmas last year. I understand that trilogues are taking place between the European Commission, the European Council and the European Parliament. I am particularly alive to concerns that fragmentation could occur between those securitisations which are indeed standardised and transparent and those which are not—again, perhaps the Minister might reflect on whether he shares concerns in that area—and between the EU and other international regulatory regimes. Under securitisation, there are 29 criteria which it will be very important to comment on.

Alongside the CMU Green Paper, the Commission launched a review of the prospectus directive. The noble Lord, Lord Hill, told us at the time that it was important to review the prospectus directive to see if it was possible to reduce burdens on issuers, to make it easier and more affordable to raise funds. The consultation paper noted in particular the lengthy, complex and expensive process of getting a prospectus approved by the national competent authority, and that practices at a national level differed considerably.

We welcomed the review, noting that it was important to ease the burden of issuers, particularly small-business issuers, and to increase the consistency of approach to liability and sanctions across member states. However, we did warn that consumer protection must not be weakened, as doing so might reduce the demand for any new financial instruments that might be devised. A balance needs to be struck to ensure that markets are attractive, both for issuers and investors.

The action plan included a proposal to modernise the prospectus directive. What has emerged is a new regulation to replace it and, again, I look forward to action to help small businesses publish a prospectus. Again, the Minister might like to reflect on that. He also might like to reflect that of course we mention in our paper peer-to-peer lending, which is not my lending him five bob for a cup of tea, and crowdfunding, both of which have enormously increased. The finance firms have doubled their lot in terms of peer-to-peer lending from last year, from €2.2 billion. Christine Farnish, the chair of that section of funding, said that that industry is a real alternative to the traditional lenders, which are typically the banks.

I will conclude by briefly touching on the implications for the role of the United Kingdom. We concluded that the CMU project was a significant opportunity for the UK positively to promote the importance of capital markets, benefiting not just the UK economy but the EU as a whole. We encouraged the Government and the UK financial sector to share best practice with other member states while recognising that the United Kingdom could itself learn from others; I look forward to hearing from the Minister in a minute.

I did take the opportunity, when the Statement was repeated by the Leader of the House just now, to make a suggestion about capital markets union. The single market was the creation of Lord Arthur Cockfield in this House when he was the British Commissioner 20 years ago. I wonder whether the Government might become more positive about what they are intending to do by holding this referendum, get on the front foot and say that there are benefits from the single market which are considerable for the European Union and for the United Kingdom. In collaboration with the Dutch presidency, why not invite the noble Lord, Lord Hill, to be a chair or at a meeting which promotes and reports on the capital markets union, something where the Prime Minister might actually stand up and say, “This is why we are in the single market and in the European Union, because it helps the City of London, it helps small businesses, it helps consumers, and it helps us become abuzz and alive again as a trading nation”? I beg to move.

My Lords, first, I thank our late chairman—if I call him that it is in the right sense—the noble Lord, Lord Harrison, for his huge contribution to the work of the sub-committee, which I am privileged still to sit on. He did an enormous amount of work. This report is another testimony to the success he achieved, but he would not have done it without the support of the backroom team. I also give my personal thanks to Stuart and Katie for their hard work, and to John Turner, who is now filling that role.

At the seminar we held about a year ago on 10 February, Hugo Dixon said of the CMU that it is,

“a slogan in search of a policy prospectus”.

What an indictment. The principles of the free movement of capital were enshrined in the treaty of Rome, which is 59—nearly 60—years old. It shows how little has been achieved in those 59 years and how much has yet to be achieved to meet the aim of the principles of the treaty of Rome.

In that respect, we are extremely fortunate to have the present Commission. It is a vast improvement on the previous one, but they will not all be like this. In particular, we need to look at the role of my noble friend Lord Hill. His title is worth bearing in mind and is very relevant to the debate. He is the European Commissioner, Financial Stability, Financial Services and Capital Markets Union. For the first time, the Commission has given the right title for somebody to get on and do the job.

The noble Lord, Lord Harrison, mentioned some of the needs for a capital markets union. It is quite clear that the banks are struggling and not meeting their objectives. It is worth remembering that new lending in the eurozone is lower today than it was 10 years ago. That is a terrible indictment of our financial system in Europe and bad news for all our companies.

The collapse in lending has now got to the state, as the noble Lord, Lord Harrison, said, where roughly 80% of companies’ debt comes from the banks, whereas in America it is under 20%. That is a huge area that the EU needs to improve on. We must retain our banks. The capital markets union must complement how the banking system works, but the figures I have given show that a huge structural problem needs to be addressed. A good capital markets union will address not just that structural problem but others, such as the pensions problem in Europe, which is grossly underfunded and needs finance, and the infrastructure problem. With the banks pulling back from infrastructure problems, how will Europe raise the €2 trillion of investment that it needs in telecoms, transport and energy infrastructure by 2020?

Europe needs to build bigger and better capital markets. According to figures that have been given to me, there has been a shortfall of more than $1 trillion a year between what European companies raised in capital markets and what they could have raised if we had operating in Europe a proper system of capital markets, as developed in the US. On 26 different measures, European capital markets are only half as big and deep as they would be if they were in the US. That is the size of the problem we face.

The action that the EU has already taken has been good. There has been substantial progress and I hope that my noble friend the Minister will update us. A regulation on securitisation and an amendment to capital requirements has been proposed, but perhaps more importantly, it is worth stressing that the drafting of the prospectus directive has been revised. This shows that the Commissioner is prepared to return to a problem to try to get a better solution. In evidence to us, which noble Lords can find on page 50 of our report, Jonathan Faull showed how difficult it was to get agreement on the prospectus directive. It was about getting the balance and what was required for the SMEs, and keeping investors interested without imposing excessive burdens. The fact that this has been revisited—we hope that progress will be made on it—shows that the Commission is more interested in listening to the concerns and in trying to get a sensible solution.

A number of problems still remain, some of which the report drew attention to. I highlight the first one in particular. In paragraph 90 we refer to the fact that significant obstacles remain, and to the problem of the financial sector being treated as silos. Has any progress been made on this? If no progress is made on that front, the capital markets union will never be the success it should be.

Paragraph 11 addresses a more difficult area that the Government alone cannot tackle: the problem of culture. There is a big difference between the culture of the EU financial market and the UK financial market, as was pointed out to us by a number of experts. There are differing “entrenched cultural norms”, and saving trends tended to be “compartmentalised” within different member states. The attitude to business failure is very different and insolvency laws are different, as are cultural and legal traditions. I was particularly struck by comments made during our seminar by Sharon Bowles—now the noble Baroness, Lady Bowles—who, luckily, is with us today. It shows the advantage of this House that she is back in a legislative Chamber. She raised exactly these points, and I look forward to hearing what she has to say and hope that she will expand on them. Unless the culture can change, it poses a serious hazard to sensible implementation.

There are also problems, as I said, surrounding insolvency law, security laws and tax. I ask my noble friend: is the Commission being too slow in tackling this? Do we expect a speedier response in future? Is the Commission doing enough to protect the retail investor and the consumer? There has been limited progress on this front. These are difficult issues. It is quite natural for the Commissioner to tackle the easy problems first, but as you start to dig deeper these are the problems that need to be addressed. I would like an update from my noble friend on that.

Another problem area is the Government’s response, which was one and a half sides of A4. That in itself was not so bad, as they had given a full reply to the CMU Green Paper; my concern is that the Government are so in agreement with the committee. That makes me think this is quite an easy ride. It is not. This will be a long, slow, drawn-out process. Given the amount of enthusiasm shown, we have to pay twice as much attention to the detail—I see the noble Lord, Lord Harrison, nodding. I am reminded of the financial transaction tax: not until our report came along did the Government wake up to the hazards. We will need to be very certain that the Government are alive to any pitfalls before us.

I want to return to one other matter before I conclude. These are the problems in Europe. There have been a number of different measures assessing how the market works throughout Europe and the relative depth of the capital market across Europe. As I said, it is not even. In fact, on every measure the rest of Europe is behind the UK. Therefore, to a lot of the countries we are talking a language they do not understand. We take it for granted. We have been brought up with it in this country. We know what the financial sector is. For many in Europe, it is not as easy as we think it is: it is much more complicated. I ask the Government to make certain that when the Prime Minister is doing his rounds, he explains in words of one syllable what the differences are and how important this is.

I wish the CMU well. Industry has to play its part. The Government cannot do this alone. Industry has to change, adapt and be very proactive to get these measures, which will bring so much benefit, on to the statute book.

My Lords, it is a pleasure to follow the noble Earl. I agree with the points that he made and agree particularly warmly with his very generous but justified tribute to our chairman, my noble friend Lord Harrison, in the previous session. He was a really perfect chairman and there was no day when we felt that we were not extraordinarily well chaired. This report is just one of the accomplishments of the committee under his chairmanship. I thought at the time that he would be an impossible act to follow, but we now have a new, very effective chairman, the noble Baroness, Lady Falkner, who is taking part in the debate this afternoon. Both these chairmen have the four qualities that seem to be essential for the role. They are always enthusiastic, they are always conscientious, they are always decisive and they are very fair. They may have differences in personality—they are well-known and respected Members of the House—but they have those qualities very strongly.

There are three important considerations in this issue of a capital markets single union. One is a central and obvious one for this country: we have a great deal of human and financial capital invested in the City of London. We stand really better than anybody else in the European Union to benefit from the emerging capital markets union, if it is in fact a real success. That has obvious implications for growth in this country, and for the generation of employment. This is of considerable—indeed, exceptional—national interest within the single market for this country.

Secondly, my noble friend Lord Harrison has made the point well that there is general agreement that it is necessary to try to provide a wider source of finance in the form of both working and long-term capital for British industry and commerce, as well as for continental industry and commerce. The 80% market share in the field of the banking system in the single market is a healthy state of affairs neither for business, commerce and industry, nor for the banking system. To introduce a greater measure of competition and greater sources of finance of this kind is an important undertaking. Again, there is strong welcome for it from both sides of this House and across the whole of the European Union. The noble Lord, Lord Hill, has a task and is being looked to by many people to accomplish it successfully, and I trust and hope that he will.

The third important consideration in this context is that there has been much talk about the relative inadequacy in the euro area of mechanisms allowing for some stabilisation in the event of asymmetric shocks. As the House knows, there is a lot of controversy about the degree of transfer payments that ought to be provided for to make a successful euro area. Whether or not we are members of the euro, we all obviously have an interest in the success and stability of that area.

What is immediately apparent to any observer is that in the United States, which is obviously a successful currency union by whose experience we ought sensibly to allow ourselves to be guided, the capital markets play a major role in that stabilisation process. That is not to say that there are not elements in that process played, importantly in the United States, by federal funds and federal government money, but it is clear that the capital markets play the major role there. That is because in a single-currency area, you eliminate exchange risk for investors within the area, which is one of the automatic results in creating the currency area in the first place. One of the advantages of creating the euro in much of the European Union has been that that effect has been generated. People are therefore naturally inclined to hold more widely diversified portfolios, going across the whole of that area. If they want to buy a pharmaceutical, automotive or retail share for their portfolio, they will not be limited by what is in their own country—previously they would have been, because they would not have wanted to incur foreign-exchange risk in many cases—but they will look equally well at a share or bond in one of those particular sectors in any other country that is part of the same currency union. That process takes some time to develop. It would be unrealistic to expect that we would have achieved the same levels of diversification in the euro area as has been achieved in the United States, but the process is ongoing and it is an important one.

The United States is working very well at present. Texas and Oklahoma lose out from the fall in the price of oil, but California, New York and Massachusetts gain. At the same time a lot of people in Texas have shares and bonds in or other claims on companies in California, New York or Massachusetts. They gain that way. Equally, a lot of investors in those three states will have claims on Texas and Oklahoma; they will share in some of the losses. There is a sharing of risk and a stabilisation mechanism there, and it is desirable that these should develop in the European Union. It will do so pretty much automatically if we can make real progress in creating a capital markets union.

I would like to make two further points to add to the considerations in our report. One is a matter that has become more serious since we published the report. In many ways I am sorry that it has taken us so long to have this debate. Nevertheless, it gives me an opportunity to talk about a new threat. On a recent visit to Brussels I was informed that the Commission may well not be pursuing the idea of an insolvency directive, whose objective would have been to create a common insolvency law throughout the European Union. If that is the case it is regrettable, and a serious reverse for the prospects of the capital markets union. If the point does not appear immediately obvious, I shall explain why. Any investor is concerned with the claims that he or she will have in the event of insolvency. Insolvency does not preoccupy many people if they buy a AAA-rated bond or a blue-chip share, but logically it becomes a disproportionately important issue at the riskier end of investment. For example, private placements, peer-to-peer lending—that has already been referred to—and venture capital are precisely the areas that we want to see expand and where we are at a competitive disadvantage to the United States, where those sources of funds are much more developed. So that is quite serious.

If an investor is confronted with the possibility of such an investment in another country with whose insolvency laws he is not intimately familiar, or not as familiar as he is with his own, he probably will not spend tens of thousands of pounds or euros on getting legal advice on the regime and jurisprudence in insolvency in the country in which he is thinking of making an investment. He probably will just not make the investment there. He will probably make it in his own country, and will not therefore get the single market or the capital markets union effect that we are trying to go for. Insolvency is very important and in my view that objective must be pursued energetically. I hope that the Minister can tell us in his winding-up speech that the Government are committed to an insolvency directive and whether they are doing anything to push the initiative forward. That is very important. The Government appear to have quite a lot of influence in the European Union, if the events of the past two or three days are anything to go by, so I hope that they will add that to their agenda.

My other point is that at present there are two initiatives in the EU in the capital markets and financial area that currently are separate, but that separation is not sustainable, viable or logical. There is a project of banking union and a project of capital markets union. It so happens that we are part of the capital markets union—a very big part, I hope—but not of banking union. I do not quite understand why we are not a part of banking union; in our sub-committee, presided over by the noble Baroness, Lady Falkner, I have asked many experts why we are not and I never get a very respectable answer except “politics”, which in my view is not a respectable answer to an important issue affecting the national interest. First, if we are not members of banking union, it seems that we shall face higher compliance costs in this country because banks operating across the EU will have to have compliance operations covering their activity in the euro area, or in the banking union area, and different compliance arrangements in this country, which is not part of the banking union. That is very undesirable.

Secondly, there will be the inevitable temptation to go in for regulatory arbitrage, which is bad from an economic point of view because it is distortionary and, of course, makes a mockery of the whole system. Thirdly, I do not think that the distinction is robust, viable or sustainable. Take, for example, shadow banking, money market funds, securitisation and indeed the development of a secondary market in securitised bank loans: are those to do with banking union or with capital markets union? The answer could be both as they could be categorised as either, so it is not a very sensible distinction to make. If we try to make it again, we will have regulatory arbitrage, costs, confusion and a lack of transparency and certainty—all the things that we are trying to avoid by creating a capital markets union in the first place. That would be very perverse and unfortunate, and I hope that people will think very seriously about that because this is an area where there is unfinished business and which is very important to this country.

My Lords, it is a great pleasure to follow the two senior members of the committee, the noble Lord, Lord Davies of Stamford, and the noble Earl, Lord Caithness, who I am delighted to see is on the road to recovery after his recent illness.

Listening to what the committee says about the noble Lord, Lord Harrison, it feels, sitting in the chair as I do now, as if he is a very hard act to follow. However, it is a stellar committee served by a stellar secretariat, and I have great pleasure to be leading it at this point in time.

The noble Lord has covered the main elements of the proposals that foreshadowed the subsequent action plan launched by the noble Lord, Lord Hill, in late September last year to bring about an improvement in capital markets in the EU. Given the wide spread of issues that other noble Lords have spoken about, I shall confine my remarks to one or two current issues that have come to light since the report was published.

In commenting on the publication of the committee’s report, I express the committee’s frustration that the business managers of this House do not seem able to schedule business in any sort of timely manner. I am sorry that the noble Lord, Lord Boswell, is not here to hear this. That is a widely repeated refrain across the sub-committees yet just the other night we rose at 7 pm, and there have been many similar previous occasions. So we come to a situation where, by the time we finally discuss matters covered by a report as long ago as 20 March 2015, a lot of water has passed under the bridge regarding things that are of huge import to this country’s financial sector.

I should add that the UK’s financial sector does not hold back. On the Commission’s Green Paper consultation on capital markets union, which is the subject of this report, 95% of the responses came from the United Kingdom, with 65% from Belgium—presumably because organisations based there have an interest in it—and 57% from France. This demonstrates that the UK not only engaged actively but did so because it will be a huge beneficiary of the proposed changes, as we were told across the board when we visited Brussels last week.

To quote the noble Lord, Lord Hill, in the Financial Times last September when he launched the Action Plan on Building a Capital Markets Union:

“This is a good example of the practical benefits that membership of the single market can bring. But to make the most of it, and to help influence the rules which will set the terms of engagement for years to come, the UK needs to be shaping the system—not looking on while others set the rules”.

These are very wise words in the now excitable atmosphere of the UK renegotiation.

We have seen over 40 legislative and non-legislative measures in the area of financial regulation since the crisis of 2008. Many of them have been necessary, but it has taken some time for the scale of the problem of illiquidity in capital markets to become apparent, for the rigidity of national insolvency laws regarding capital markets—something commented upon a moment ago by the noble Lord, Lord Davies—to be overcome, and for the retail financial services sector to be kick-started across the EU, which is sorely needed. The EU economy is roughly the same size as that of the US but its equity markets are less than half the size. I think that the noble Lord, Lord Hill, estimated that if European venture capital markets were as deep as those in the US, over the past five years EU companies could have raised an extra €90 billion of badly needed investment.

I said I would update the House on one or two of the measures, and the House has already heard from noble Lords on both of them. One of them concerns securitisation, the first major piece of work undertaken under this heading. It is intended to create a simple, transparent and standardised framework for the regulation of securities in order that a prudent and diligent investor in asset-backed securities will be better able to analyse and price the risk involved. This should considerably reduce the capital charges imposed on banks and insurers when they invest. It will also bring much-needed transparency to the pricing of risk through standard templates and require originators, sponsors and original lenders to retain risk of not less than 5%. In other words, it will ensure that those investors and insurers have a dog in the fight, albeit a very small dog at 5%. That shortcoming was exposed during the sub-prime mortgage crisis in the US in 2008.

The UK has a significant interest here: it accounted for 22% of European securitisation issuance in 2014 and 46% of the investor base. However, the proposals have come under fire as they do not envisage an overarching regulator determining whether a securitisation meets the criteria required. This criticism is mainly from France, I should add, where the concern is that only the biggest investors would have the expertise and resources to enter the market, but this remains a valid concern, as the urgent need is also to enable SMEs to access capital markets more readily. I hope that in due course, as the proposals bed down, the secretariat of the noble Lord, Lord Hill, will have another look at this.

A further change has come about with agreement on Solvency II, which came into force on 1 January and will impact the insurance industry hugely as it revises and updates the current solvency framework in the EU. It does this through reducing the risk of insolvency, reduces losses to policyholders and gives an early warning to supervisors so that they can intervene promptly if capital falls below the required level. It intends to promote confidence in the financial stability of the insurance sector though creating a more level playing field. It has taken a long time to get here—its origins go back to 2002—and its effects will undoubtedly take some time to work through, but overall, despite the reservations of some parts of the UK insurance industry, I argue that it can only be a good thing to level the playing field.

We are in the middle of scrutiny of the Prospectus Regulation and it is too early to say where this will end up. However, since the Minister is here, I hope that he will take on board the following thoughts: that we as a committee find it a little frustrating that we do not receive more feedback from relevant Ministers as to their consultation with stakeholders. This regulation will considerably impact on the SME sector raising the threshold definition of an SME from €100 million to €200 million in market capitalisation. It would be important for us—particularly in the case of regulations where we are the backstop of scrutiny—to hear what industry voices have said and what their discussions with the Treasury have revealed in terms of our scrutiny function.

Finally, let me turn to the issue of economic governance as set out in President Tusk’s detailed proposals on Tuesday. The section on economic governance says that eurozone members should respect the rights and competences of non-participating member states. He goes on to argue that facilitating the coexistence between different perspectives within a single institutional framework is important and that the equality of member states before the treaties should be upheld.

I accept that it is still early days but there is a need for clarification on a number of fronts. Mr Tusk refers to discrimination in the text but goes on to say that different treatment must be based on objective reasons. The question arises as to how we define objective reasons and whether it is to be left to the court to adjudicate between objective reasons on the one hand and action arising on the basis of financial stability on the other, an area where differential treatment is allowable. I suspect that differential treatment will be allowable but only up to a point, and the question will be: which point? I hope the Minister will be able to relate these concerns back to the negotiating team.

Today’s Financial Times says in its headline that the safeguards’ impact on the City remains unknown. This is not a party political point; it is imperative that we gain clarity on this before the European Council and its final conclusions on the negotiation on 18 and 19 February.

To conclude, the sub-committee’s report is titled Capital Markets Union: A Welcome Start. The noble Lord, Lord Hill, has started on this exercise. We wish him all success in delivering the capital markets that Europe so badly needs.

My Lords, I am not so sure that the noble Baroness, Lady Falkner of Margravine, will actually get an answer to the question she has just posed in time for the onset of the referendum campaign and the declaration from the European Council negotiations, but I hope she will. I hope the Government will be able to respond because it is a very pertinent question.

Despite the fact that it has taken a long time for this debate to be held—I agree with the complaints about that—I add my thanks to the noble Lord, Lord Harrison, for opening this debate and for having been such a successful chairman of this sub-committee. I do not want to embarrass him but I am reminded of that famous joke about a human cannonball who was injured—not seriously, I hasten to add—in a circus in Britain some years ago, and the ringmaster wrung his hands in panic and said that it would take him years to find another man of the same calibre. We thank the noble Lord, Lord Harrison, for having been such an excellent chairman of this committee. In this case there is another person of the same calibre—in this case a woman—namely the noble Baroness, Lady Falkner of Margravine, so we welcome her and wish her well in this committee.

It is not an easy task to promote this document and these recommendations because the timetable is long, and that is likely to mean that it is going to be depressing as well, but we have to really press hard, particularly with our natural authority as one of the leading marketplaces of the European Union and the strength of the City of London, where as we know the biggest dealers in the euro are found. It has to be pressed very hard and I hope the Government will do so, perhaps in contrast to their rather restricted enthusiasm about being an integrated member of the single market syndrome for financial markets as we are for the single market in physical products. They are not so keen on other aspects of the European Union membership obligations that we have in respect of the items that have been enunciated in the negotiations for the referendum campaign.

I regret that very much because I think we need to maintain our enthusiasm for the European Union anyway. In this field it is much more difficult because, as other speakers in this debate have said, the level of development in other countries is much lower. This is one where we are ahead; while Britain has improved in recent years, none the less we sadly find that we are behind other member states in industrial performance and behaviour. The Government talk in the referendum negotiations about the need for enhancing competitiveness in Europe, and I agree entirely. They mean different aspects of course but it is amusing to reflect that we are the only large member state that has a huge trade deficit of rather ominous size, whereas the other large members states—Germany, Italy, France and, I think, Spain—have a considerable trade surplus with Britain. A little bit more modesty in that context would come in handy, but in this particular area we are ahead.

I was a long-standing practitioner many years ago in the stock markets in the City of London. It is interesting to see how we have always maintained that lead by bringing size, capacity and influence of operation together; then the big bang really enhanced that. To some extent this is a kind of European-wide big bang exercise, not promoted just by private enterprise but also by legislation, as was the case in Britain. France followed with its own big bang a year after Britain and other countries followed suit. However there are still areas of lack of development. For instance in Germany, the biggest and most successful economy, surprisingly we find that financial markets are much less developed, notwithstanding the promulgation 14 years ago, I believe, of the Finanzplatz Deutschland scheme which helped to open up German stock markets. They opened up quite considerably at the margin but only a little bit proportionally. Therefore Germany also needs to take an interest in this field, because there are very strong beliefs there in the single market aspects in general and there should be on financial things as well. Their industry and smaller, Mittelstand companies are dominated by their relationships with the banks.

That is an aspect of how the culture takes a long time to change and patience is needed for that to happen. In other countries it can be quicker, particularly in the new member states where these matters may be much less developed, and therefore are more likely to be able to operate on the basis of new proposals coming from the Commission, which would gradually integrate these markets more and more.

I was delighted too when the noble Lord, Lord Hill, went to be the Commissioner for Financial Services and Markets. We were sad to lose him as Leader of this House—a very capable Leader with a sense of humour, which you need in that position—and he is now becoming a very successful Commissioner with exactly the right portfolio from the point of view of this country. We wish him well on his very hard-working and patient track to success, which will take some time.

I agreed with the noble Lord, Lord Davies of Stamford, when he was referring to the advantages in the United States of the open market system, the vast amount of money raised in the capital markets and the various desirable and productive effects of that. However, perhaps he should not get too carried away because in contrast to that the worrying problem in the United States is the level of debt that has been accumulated in the public sector and by Government, as well as elsewhere. The level of debt in the United States is a very serious problem and we need a balanced view of that. As long as everybody in the world is prepared to accept the greenback as the world’s leading reserve currency, then it is all right, but as the federal debt alone in the United States is $17 trillion, and half the states and 40 American cities are technically bankrupt, then that has to be held in check because one day it might collapse if an alternative reserve currency comes along. Lo and behold, look how close the euro is getting to the US dollar in terms of international banking payments transactions—the measurement of all transactions throughout the world every day. It is now six points behind the US dollar whereas a few years ago it was miles behind. The euro, therefore, is in reality not like it is in the view of the chauvinistic British press; it is a very successful currency in general, with three or four members who find it difficult to keep in recently, and most of them are solving their problems—now even Greece, with eight parliamentary votes in favour of the strict measures, has been able to do that.

I therefore hope that the Minister will reply to the various questions he has been asked. This is an excellent report, and I wish the Government well in pursuing this portfolio.

My Lords, I add my great appreciation of the noble Lord, Lord Harrison. I spent four years on the EU Economic and Financial Affairs Sub-Committee, which he chaired. There were, shall I say, widespread views among the members of that committee, but we never had any problems in putting together sensible papers, and it was very much due to his most courteous and constructive chairmanship. I am sure that the noble Baroness, Lady Falkner, his successor, will be an equally good chairman. I always thought that it was wrong that the committee should just be a sub-committee of the EU Committee, because it is an incredibly important committee. It is at the front line of looking at all the stuff that comes through, such as whether we will have a financial transaction tax, and goodness knows what; it is a crucial part of our interface as a member of the EU. I also add my congratulations and appreciation that my noble friend Lord Hill got the job—he is a decent and sensible person and will cope with some things that urgently need doing.

To me, the “EU” bit of the capital markets is in fact not so fundamental; Europe needs more capital investment—it does not matter where it comes from. London has been the key place for channelling international capital, much of it into Europe, and America is probably the largest private equity and venture capital investor in Europe already. As we know, the problems are that the banks cannot lend more and that there is a super-rated dependency on banks anyway, but debt problems and so forth limit what the banks can lend to SMEs anyway, and the euro crisis killed cross-border bank lending within the EU. Therefore what is left, which is crucial, is the need to get more equity money to SMEs. I think my noble friend Lord Hill described his task as channelling savings from anywhere in the EU to be invested anywhere in the EU; I would amend that to say “to channel investments from anywhere to be invested anywhere in the EU”.

I pick up the point which the noble Lord, Lord Harrison, made, which is that there is a pretty strong lack of willingness within the EU to invest in other countries; I think 94% of EU citizens very much shy away from any sort of financial involvement in other countries. That task of just increasing capital flows in the EU will very much come from London, and on the back of the US. I hoped that I would learn today about how my noble friend Lord Hill has been getting on in achieving the action plan that he drew up last September, and indeed, I have learned some quite important points. However, something slightly disappointed me.

I remember when we had our session with my noble friend Lord Hill, I made the point to him that the enterprise investment scheme—I declare an interest as chairman of the EIS Association—has raised a lot of high-risk equity capital for SMEs: about £12 billion or £13 billion. France wisely came over to look at what the UK was doing, copied us and put in a similar scheme, which is gaining some momentum. I suggested to my noble friend Lord Hill, “Why don’t you try to persuade each of at least the main economies within the EU to put in their own EIS-type scheme?”. However, not only has nothing happened, but, unfortunately, the EU Competition Commissioner has decided to attack the UK’s EIS schemes, holding a sort of pistol to our head in terms of state aid approval, and has required a great deal of complications and for money which a company can raise under EIS to be significantly reduced. Worst of all, she has required us to put in a 2025 date for ending the enterprise investment scheme. Who knows whether that will happen? I thought it quite extraordinary that, where the EU desperately needs more capital flows for SMEs, you have the Competition Commissioner of all people deciding that she wants to get rid of the EIS arrangement for raising risk equity for small companies. As regards the measures, a small company—the size is determined by the number of employees and the size of the balance sheet—could raise up to £5 million a year under the EIS scheme, but now it has a cap it cannot raise more than £12 million over its lifetime, whereas it was £5 million a year unlimited.

I do not know how successful things such as peer-to-peer lending or crowdfunding have been on a cross-country basis. Mostly, what has happened has been organised through London and some of it through Guernsey. However, I have some reservations about such arrangements, because I cannot help feeling that, when a bad economic period inevitably comes, there will be significant losses on peer-to-peer lending; for some people it does not matter if rich people lose money, because “They can afford it”, but if it is not rich people, people will claim that they were misled and did not know what would happen. I also got a huge shock when I noticed that peer-to-peer lending had been exploited in China to develop a Ponzi fraud that has involved 880,000 people and £5.3 billion, so there is some vulnerability to fraud there.

The Government have not exactly shouted from the rooftops but have been realistically supportive of the capital markets initiative. They have been keen to kick-start securitisation, develop the private placement market and to enhance SME credit information through non-legislative means. The UK Government have been strongly opposed to any attempts to establish a system of pan-EU supervision on the grounds that this would be prolonged unhelpful distraction, which is probably true.

To come back to London and its importance and contribution, just yesterday afternoon I spoke at a conference on the most esoteric subject imaginable: the difference between what is known as NPPR—the old, historic rules, under which if a fund wanted to market itself in Europe, it got permission from the Government directly—and AIFM passporting, which is supposed to enable you to market a fund across EU members. To my amazement, 350 people turned up at this seminar, not to hear me in particular but because of the subject. That is a classic example of what London is doing. In this case, London has a mixture of UK, US and other nationality funds raising money and marketing themselves in Europe and then very much investing the proceeds in Europe, so the middleman role in London is actually happening loud and clear. I ended up thinking that it is motherhood and pie. Of course we want a much bigger and more effective capital market across Europe. We want to have as effective a market as the USA. What the EU could do to improve things is limited—quite a lot of the constraints are cultural—but it is happening slowly and London is completely at the centre of it.

Going back to my comments about EIS and the Competition Commissioner, the EU can shoot itself in the foot and, by what it has been doing, damage the very objective it is seeking, which is more capital flows for SMEs. Let us hope that we do not get any more of that. Otherwise, let us get a move on and do things.

My Lords, I declare my financial services interests as entered in the register, in particular as a non-executive director of the London Stock Exchange Group and Prime Collateralised Securities ASBL.

I welcome this report. It is now some time since it was published and events have moved on, as envisaged and suggested in the report. I have been widely quoted in it, including a contribution from the seminar on pages 31 and 41, so I feel somewhat as if I am being given a fourth and fifth bite at the cherry.

I thank the previous sub-committee chair, the noble Lord, Lord Harrison, the new chair, my noble friend Lady Falkner of Margravine and all noble Lords who have served on both the former and present committees for their interest and attention when I have given evidence on this and other reports.

The most frequently asked questions about CMU, especially in the early days, were “Why?” or “What’s changed?” or “What’s new?” I will dwell on those for a moment because I think they answer some of the questions about culture that were raised earlier. As has already been pointed out, CMU is founded on the freedom of movement of capital set out in the Treaty of Rome, so one way or another we have been aspiring to it for rather a long time. There has always been deep envy of the liquid capital markets in the United States. To try to emulate those, we had the financial services action plan which was a big step in the right direction.

More recently, the financial crisis and major international initiatives on systemic risk, coupled with the review of that financial services action plan, stimulated the 40 or so pieces of financial markets legislation between 2009 and 2014 which I had the privilege of negotiating. Consumer protection, culture, systemic risk and limiting both contagion and arbitrage were key objectives in that legislation.

One might ask what is left; in one sense the answer is “Not a lot”, other than getting all that legislation fully functioning and tweaking it where necessary. A stocktaking consultation has just closed, but quite a lot of what has been legislated still awaits secondary rule-making. It will not be operational until 2017 or 2018, in just the same way as the UK’s own legislation on ring-fenced banks is taking a while to get fully functional. So stocktaking needs to be an ongoing story.

However, the response to the great financial crisis—to give it its historic name— shifted shape over time and eventually turned to incentives for increasing capital markets rather than just worrying about them. It could be seen that the same old factor of deep markets had helped the US to be less reliant on banks and to recover more quickly. On top of that was the policy response to bailing out banks, which made rules to protect national balance sheets—usually rendered as protecting taxpayers. That was done through a process of bailing in bondholders—that is, converting them into equity—which means they are no longer let off the hook.

That then raises the question: who are the bondholders? They are, of course, investors, many of them institutional investors looking after the savings and pensions of ordinary individuals—workers and taxpayers. The situation where a failing bank causes knock-on failures has to be avoided. So spreading the “bail-inable” bonds in a wide market is an important corollary to rules about sharing out a failed bank’s losses.

There are some who suggest that capital market union is more relevant for the eurozone. This is an interesting point which is both true and not true. It is true that the monetary union’s construct, without mutualisation of sovereign debt, urgently seeks to decouple banks and sovereigns and to have mechanisms to spread risk. So it is not surprising that the European Central Bank was first in the recent calls for a financial markets union, later renamed the capital markets union. Even though the ECB says that it does not want to be the supervisor of the capital markets union, it has a big influence on the culture and thinking around the whole project.

I said that it was not true in one sense. It is not true also in the sense that the logic of having better capital markets to stimulate jobs and growth, to have less reliance on banks and to be able to spread risk to the market rather than a national balance sheet applies outside the eurozone as well. To spread it wider than the local shock is better for stability; institutional investors have multi-currency exposures anyway.

All this drove the CMU proposals and, despite some mutterings, it is jolly useful to have mood music from all sides that capital markets are good. Some of us have tried really hard to create that. Until now it has been countries from within the eurozone that have been far more sceptical about the benefits of markets, had underdeveloped markets themselves, and have held back market-opening proposals or simply have not understood what it was all about. That has made legislative negotiations on markets matters excruciatingly difficult—although, despite the pain, the UK did rather well. However, this shows again that there is a change in culture and that the future looks brighter on this horizon.

Does eurozone enthusiasm mean that it would try to do things for itself? Would this stimulate attempts to rival the City and construct different rules about what had to be done in the eurozone? Any suggestion of that was jumped on very quickly, even as there was the turnaround in mandate from the old Commission and Parliament to the new. Common sense has broken out all around in accepting that the UK and the City are a major asset and central to the CMU project. The current Commission President, Jean-Claude Juncker, made bold statements to that effect at a very early stage.

Whether the eurozone countries choose to have a single supervisor is still being touted around, but it is a trickier project than banking union due to the number and diversity of market participants and with no substantial organisation to bolt it on to. This assumes it is true that the ECB does not want it.

However the eurozone might choose to share supervision or not, the economic governance section of the draft EU reform documents clarifies that the UK can retain its own supervision. The answer to those who wonder why we are not part of a banking union is that it is the link between supervision and sovereignty, rather than the link between rules and sovereignty.

How much the eurozone might need a subset of rules for itself will depend a lot on attitudes after EU reform, but I cannot see it as constructive for the eurozone to be overly clubby or for the UK to be overly aloof. Neither leads to an effective capital markets union. I referenced the draft EU reform document and I must say that, on balance, what is in the economic governance section is very good in its intent, but I am pretty desperate to get my hands on some of the drafting.

As the report highlights, it is a good start to do those things that will not get bogged down: the simple, safe securitisation that has been referred to. But of course it is not always that easy to do things simply. You fall between self-certification—can you do due diligence?—and having outside certification. So we are back to something that might be criticised, such as rating agencies, or do you ask a regulator to do it? Most regulators do not want the liability. That is one conundrum that awaits to be resolved.

On adjustments to the Prospectus directive, I recall the discussion about whether it could be more than €100 million in the last revision. The point is, if we put it up to €200 million that might be SMEs in some countries but all they have in some other countries, so they would not have a main market; they would have only a small market. In desperation, I suggested that they use a purchasing power parity multiplication factor, which seems to be the sort of thing that we are now agreeing for benefits that go to other countries. Maybe someone could do something useful around purchasing power parities if the size of markets in some of the smaller member states or less-developed markets becomes an issue.

We definitely need to mend insurance regulation that has militated against long-term investment, and I cannot say that without pointing out that it was the UK that drove Solvency II and its mistakes, and is still overzealous in its application. Now is the time to stop the warring over French, German and UK preferences and get it fixed.

Longer term, there will be other measures and here are some thoughts. Can we build a better insolvency regime? If we cannot do it for insolvency, can we do it through pre-insolvency and presumptive paths for what happens in a failure, which is akin to what has been done in the recovery and resolution work? Can we get to grips with the unfair tax advantage given to debt? As an aside, I worry that while everyone says that it is a good idea to encourage equity, international banking regulation requires an increase in debt instruments to meet bail-in targets. There are no calls for major new legislation, but it is a fact that changes to legislation have to be legislated for. If you have some good industry standards that you want to use cross-border, the only way you can get that in force without arbitrage or barriers is, alas, to have legislation.

It is very easy to say in prose that there must be a balance of simplifying or enabling and consumer protection. It is rather harder to legislate for it when everyone wants their own protections kept. Finally, it should be appreciated that disclosure requirements, which are disliked by industry, are often what keeps heavier-handedness at bay. That is often the deal. You can put in a disclosure requirement instead of trying to ban something.

CMU is actually a mix of passion, policy and pragmatism. The passion is to provide jobs, created through more opportunities for business to find funding and a passion to buffer the national balance sheet and the services that we cherish from future banking collapse. The policy is the universal awareness that jobs will come from stimulating capital markets; it is not about doing down banks because they will be involved, but not all things belong in banks. The pragmatism is the basic theme that this is far more about “Let us make this work” than “Let us get regulating”. Of itself, the EU is moving in our direction. That is a backdrop that I dreamed about.

My Lords, I, too, express my appreciation for the work of my noble friend Lord Harrison in presenting the last of his significant reports on behalf of the committee. He is used to delayed government responses, which sometimes means that if the report is not entirely overtaken by developments, a substantial part of it has certainly led to action being taken that obliges the committee to consider further matters. We certainly had that experience today.

I am still trying to absorb the last contribution, from the noble Baroness, Lady Bowles. Although the noble Lord, Lord Hill, made such a favourable impression on the committee—and we would expect him to extend his duties so seriously and constructively—she must have destroyed any illusion that he can see an easy road ahead of him. That was ably demonstrated by the contributions to this debate about the formidable challenges that lie ahead. He, the community and all of us are just in the foothills of dealing with these problems; the greater heights are some distance away. The noble Lord indicated that he regarded this as a five-year project, but aspects of that verge on the optimistic. What is clear is that the committee is agreed on advances that can be made, and it believes that the noble Lord is eager to take advantage of any opportunity to progress the capital markets union.

We on these Benches totally endorse that objective. I sympathise with the Minister regarding the number of definitive and difficult questions that emerged from all sides in this debate. I can make his task easier in one respect: I will not present any significant area of disagreement. But reference was made to the issue of the culture of different institutions in different countries. By heavens, we all recognise what a challenge that is. The country expects us to change the culture of our own financial institutions but we are all in the foothills of that issue, too, in terms of the challenges it presents.

I assure the Minister that I will not disagree with him on any progressive steps that he indicates the Government support in promoting the capital markets union, but I have one obvious anxiety. The noble Lord, Lord Hill, appeared before the committee and his subsequent document presented a position of constructive endeavour, built on the fact that an awful lot of persuasion is needed and there are challenges from very different perspectives across Europe. He is not helped by the Government’s present position of threatening the Community, rather than co-operating with it. Of course, we will all support the Prime Minister in his attempt to get a yes response to the referendum—if that referendum duly takes place. But this report, consideration of it and all the contributions this afternoon have identified the difficulties in making progress while there are such obvious problems as far as the British attitude is concerned. I hope that when the committee reports again under its new chairman—the noble Baroness, Lady Falkner—it will do so in a climate of greater co-operation, in which the United Kingdom can put forward proposals that fit rather better with the grain of European thinking than its present stance.

Let us be clear: there is quite a challenge before us. What we seek to do—the European Community is well aware of this—is to foresee the way in which the European Union as an economic unity, as a trading bloc and as a single market will develop. But we tend to compare it with other units that are, largely, nation states. The United States, to which we compare ourselves, has a totally different framework of political institutions with which to deal with this issue. We must therefore recognise just how much more of a challenge it is for us than it is for the US.

We know what the targets are. We know that the success of the American economy is partly based on the fact that 80% of its finance is raised in capital markets and only 20% from its banks. The situation in the UK is almost the reverse of that. The challenge is one that the noble Lord, Lord Hill, has both the capability to recognise and—in due course, I hope—the competence to tackle.

The Minister has been offered no doubts today that this is a major challenge, and that action needs to be constructive and forthright. Thus far, time has passed with good intentions being expressed but relatively little achieved. The Minister has today been given some clear indications, largely from members of the committee, as he would expect, because they have developed their expertise as they have looked at these issues. They have asked questions which I hope he will set out to answer, because they are pertinent to the challenge before us. The Minister is not a member of the committee, any more than I am, but I hope he will recognise that the debate has identified clear issues relevant to the challenge of the capital markets union. Some progress has been made, and we are fortunate in the qualities of the Commissioner responsible for taking this forward in Brussels. He is very well known to us, and we know about his competence, his ability and his commitment. The Minister now needs to answer some of the forthright questions that have been asked this afternoon.

My Lords, I thank all those who have contributed to the debate, particularly the erstwhile chairman of the committee, the noble Lord, Lord Harrison. I am grateful for the report that he and his committee members and secretariat have produced.

The noble Lord, Lord Davies of Oldham, requested me to answer the questions posed in the numerous speeches in the debate. I shall make every effort to do so in my speech, but if perchance I cannot give the full detail, I will write to noble Lords.

The noble Baroness, Lady Falkner, and the noble Lord, Lord Dykes, and other noble Lords talked about the timeliness of the debate, and I am sure the business managers who scheduled it will have taken note of the noble Baroness’s comments.

As has been outlined in the debate, on 20 March last year this House published its report entitled Capital Markets Union: A Welcome Start. It was based on the European Commission’s Green Paper Building A Capital Markets Union, which was published in February 2015. Since those documents were published, the capital markets union project has seen significant developments.

At the end of September last year, the European Commission published its action plan for a capital markets union, based on its review of the many consultation responses to its Green Paper. I am pleased to note that the reforms proposed in the action plan are strongly aligned with the recommendations of the committee report from March. The list includes measures that the noble Lord, Lord Harrison, highlighted in his speech, such as reforms to modernise prospectuses and to revive securitisation in the EU, and other actions covered in the committee’s report, such as improvements to credit information on SMEs.

More broadly, the committee report called for a pragmatic approach to reforms across the CMU that would benefit all 28 member states—an approach which I believe has been reflected in the Commission’s action plan. My noble friend Lord Hill has made it clear that creating CMU will be a step-by-step consultative process, and that decisions on the design of reforms will be evidence based and subject to rigorous economic impact analysis.

I shall use my time today to set out briefly the Government’s views on the action plan, highlight the action the Government have been taking and respond to some of the issues that have been raised in the debate today. The CMU action plan has the full support of the Government: we think it represents the sort of work the European Commission should be undertaking.

Building on the substantial financial reforms following the financial crisis, the Commission has shifted its focus to strengthening Europe’s economic recovery by generating jobs and growth in the European Union—an agenda I am sure we all support. As part of this, it has identified further integrating and deepening Europe’s capital markets as a key priority. Developing Europe’s capital markets will help bring greater balance, improve the range of options for firms seeking finance, and enhance risk diversification by ensuring that market-based finance is strengthened as a complement to bank finance.

The CMU action plan sets out the initiatives the Commission will pursue. My noble friend Lord Hill has succinctly described the project’s aim as linking savings more efficiently with growth. Importantly, the Commission is not just tackling a problem, as the United Kingdom Government have been advocating for some time, but is doing so in a way firmly rooted in the better regulation agenda that the Prime Minister and others have been calling for.

Delivery of CMU forms part of the Government’s agenda for a more competitive European Union. If we are to make Europe more competitive, we need to create a true single market in capital, by breaking down the barriers that stop flows between member states and prevent businesses accessing the finance they need to grow and succeed.

As noble Lords will have seen, the action plan is thematic, identifying six key areas for reform. These include: financing for innovation, start-ups and non-listed companies; making it easier for firms to access and use public markets; measures on long-term infrastructure and sustainable investment; fostering retail and institutional investment; leveraging bank capacity; and facilitating cross-border investing.

As the noble Lord, Lord Harrison, noted in his speech, the Commission has made swift progress on a set of priority measures. These include proposals and live negotiations on securitisation, and the rules around prospectuses. Consultations have also been launched on venture capital rules, and a call for evidence on the cumulative impact of current EU financial services legislation. The Government support these priorities, and have been actively engaging in negotiations and responding to consultations.

The action plan features a range of reforms that will help SMEs, particularly high-growth innovative businesses, get access to the finance that they need. CMU will help by giving them access to more investors across the single market—by pooling investment resources, by helping venture capitalists and angel investors, and by making it easier to list on public markets.

From a UK perspective, it is not just our smaller firms that will benefit. Breaking down barriers across the single market will help British firms diversify their investments at lower cost, and offer our competitive products to savers across the single market. The Government have been heavily engaged in the CMU work to date, and will continue to strive to influence these reforms as they develop.

The noble Lord, Lord Harrison, in his excellent speech, said how important it was to ensure that the capital markets union delivers for small businesses. Helping small businesses grow and prosper is a key priority for the Government, both as part of the capital markets union and more widely. We want to ensure that growing and innovative companies are key beneficiaries of the CMU.

We call on the Commission to make a number of reforms to help small businesses in particular, and this has been reflected in the Commission’s approach. Examples include improving small businesses’ credit information, supporting crowdfunding and business growth funds, and lowering the cost to small businesses of listing on public markets, as well as reviving securitisation. The Commission has committed to delivering these reforms and we will continue to engage with its work to make sure that capital markets union delivers for small businesses.

The noble Lord, Lord Harrison, also asked what discussions had taken place with the Dutch presidency. As the noble Lord is aware, discussions have taken place with the Dutch presidency, as with all member states and the Commission. Any more information on the actual discussions I will pass on by writing to the noble Lord on those issues.

The noble Lord also talked about the benefits for the United Kingdom of the single market. As my right honourable friend the Prime Minister set out in his Statement to the Commons yesterday, and my noble friend the Lord Privy Seal reaffirmed today, the draft text published by Council President Tusk earlier in the week set out clear mechanisms to deal with the rule-making and bureaucracy of the EU, complete the single market and sign international trade deals.

There is also a stand-alone competitiveness declaration that spells out that more can be done to exploit fully the potential of all strands of the single market. We need to breathe new life into the internal market, and Europe must boost its competitiveness in key areas, such as energy and the digital market.

I did not want to interrupt the noble Earl’s flow, but I asked a very specific question about concerns that have arisen in the light of the Prime Minister’s Statement. I wonder whether the Minister will give us a reassurance that he will take those concerns back to the Treasury.

My Lords, of course I will. The noble Baroness makes a good point. All concerns of noble Lords who have asked for reassurances, as the noble Lord, Lord Harrison, did, will go back to the department for further thought.

As my right honourable friend the Prime Minister has said, these changes will make sure that Europe works for all the British people who want to work, have security, get on and make the most of their lives.

My noble friend Lord Caithness talked about the financial sector operating in silos. The capital markets union is intended to further integrate capital markets and to strengthen the linkages between the various agents and consumers—the intermediaries and recipients of investments.

My noble friend also talked, as did other noble Lords, including the noble Lord, Lord Davies, and the noble Baroness, Lady Bowles, about the cultural obstacles in the CMU. It is right to identify the cultural obstacles. Evidence shows that 94% of EU citizens have never bought a financial product outside their home member state. Encouragingly, the CMU seeks to tackle these issues. My noble friend Lord Hill has recognised these challenges. Examples of the steps taken include a special working group established to look at specific national barriers of this nature, with plans being drawn for those member states with more experience in tackling these cultural issues to share experience and best practice with others.

The noble Lord, Lord Davies of Stamford, raised the subject of insolvency. The Government welcome the Commission’s proposals around improving the effectiveness of insolvency frameworks, and the intention of promoting business recovery and returning capital to creditors. Reform should be targeted at those member states currently without suitable laws for the rescue of viable businesses in distress. The Commission should also seek to address the underlying gaps in capability and infrastructure in some member states, and any proposals should be evidence based and take into account any regimes that already successfully support business rescue.

I am grateful to the Minister for that response to my questions. I was not so much concerned with the important issue he has just mentioned of trying to reduce losses to creditors from insolvency and the cost of the insolvency process, which we all know can be prohibitively high sometimes, including in this country. I was concerned much more with establishing a capital markets union and the importance of insolvency in that context, which I set out in my speech, so I will not repeat it now. Does the Minister have any thoughts on whether that can be advanced further?

I do not have the details in front of me but I will write to the noble Lord on that issue. I hope he will accept that.

I thank my noble friend Lord Flight for raising the issue of the enterprise investment scheme, which I will bring, along with the whole debate, to the attention of my noble friend Lord Hill. That will be a very useful exercise; I know how important he considers the work of the committees of this House. If there is anything more I can add for my noble friend, I will do so.

The CMU is an important part of the Commission’s financial services agenda over the coming years, and if it is successful it will have long-term benefits to businesses and investors here in the United Kingdom and across the European Union. We will of course keep noble Lords updated as appropriate, and I welcome their continued interest in this important issue.

My Lords, I am grateful to all Members who have contributed so positively to this debate. We can see that the noble Baroness, Lady Bowles, is going to be a considerable addition to the House. The noble Lord, Lord Dykes, reminds us as ever that the euro’s position as a reserve currency is breathing hot breath behind the greenback. It is a joy, as ever, to box and cox with the noble Earl, Lord Caithness, in a debate on financial affairs, as we have done so well in the past. To the noble Lord, Lord Flight, I have to say, I would go 500 miles to hear him among 350 eager citizens dilate upon the AIFMD. I dwell, though, on my noble friend Lord Davies of Stamford’s characterisation of the chairs of the committee and I thank him for those compliments to both me and the noble Baroness, Lady Falkner of Margravine.

I will tell a little story in conclusion. Many years ago—some 20 years ago—the editor of the Wirral Globe, improbably called Robin Bird, followed me to Strasbourg when I was an MEP and then wrote a piece about me, highlighting the fact that I was born and brought up in Oxford, and characterising me by putting “Morse” at the top of the story that followed in the Wirral Globe. I am very happy to be a prequel to the noble Baroness, Lady Falkner—the prequel, of course, is “Endeavour”. I look to the Minister: show some endeavour on this. Use the capital markets union to go on to the front foot and say that the United Kingdom is pre-eminent in financial affairs, with the City of London, with small businesses for which we have always had a strong concern. Ensure that the opportunities arrive, either, as I say, under the Dutch presidency or through some long-term planning for the British presidency, which will arrive at the back-end of 2017. We can do something; we can go on the front foot.

I am very grateful to all those who have contributed not only to the capital markets union but on that theme, which now becomes so vital for this country.

Motion agreed.

House adjourned at 3.30 pm.