Mr Cash: Yes, but that one instance demonstrates a principle. For 15 years, I have been advocating that we use the “notwithstanding” formula, and when my party was in opposition, we agreed that we would do so. If we were to use it just once now we are in government, it

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would send out an appropriate signal. Unfortunately, however, that is not happening. We hear about aspirations and reservations, and that it would be a good idea to change the relationship and to repatriate powers, but I have very little confidence that we will achieve anything when it comes down to it. Even more dangerous is the raising of expectations only to have them dashed by reality. As Churchill said, offering something to the British people but not fulfilling that promise is the best way to ensure that they will no longer trust us.

There are many aspects to this work programme—including a proposal for a European public prosecutor’s office, which I was glad to hear the Minister say we will not accept—but I shall not go into other matters this afternoon because they are so numerous and because others wish to speak. Let me simply make the point that we are now at a threshold and that there is no turning back. Messrs Barroso and van Rompuy, unelected as they are, have thrown down the gauntlet to the British people. They have said, “We are going to have a federal system,” yet it is unthinkable that this country would get involved in federal arrangements, be they in the eurozone or indeed in the European Union as a whole. We must have a clear strategy; we must have a fundamental change in our relationship. What goes with that has to be a return to the British people of the right to determine the legislation that they voted for in general elections. That is the principle on which this House was founded, and that is the principle on which we have to stand.

4.40 pm

Ms Gisela Stuart (Birmingham, Edgbaston) (Lab): Just ahead of the debate, I checked one of the political blogs and saw the following phrase:

“Over a hundred million pounds over budget, four years late, and the subject of a National Audit Office investigation”

and I thought that must be about the European Union. No, it was about the BBC’s rebuild. That brought it home to me that this House collectively pays great attention to the BBC, gives it more scrutiny and is better informed about how it runs than it is of the entire Commission work programme. As this is probably the last European Commission work programme before the 2014 election, at which the Conservative party might find itself beaten into second place by the UK Independence party vote, and we are moving into a time when matters European are going to be important across all the parties, I want to discuss the way in which we talk about the Commission programme.

It has been interesting to note that over the past hour, we have talked just about process and there has been very little on the substance. The truth is that debating an entire Commission programme in an hour and a half is a bit like saying that the Chancellor’s Budget speech or the Queen’s Speech should be debated by the House of Commons in an hour and a half. That is the equivalent; let us face it. If, as the Minister says, he is throwing a gauntlet down to Parliament, I would like gently to chuck it back to him and say that a number of things need to change if Parliament is seriously to engage with this issue.

I genuinely mean no disrespect, but if the European Union has this huge influence on our domestic legislative programme, which this work programme shows it does, what on earth is this matter doing in the Foreign Office?

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This is not foreign; it is domestic. The number of legislative issues that need to be addressed must be addressed by departmental Cabinet Ministers on a regular basis. I know that suggestions have been made about upgrading the role of the Minister for Europe, but I say no: I want UKREP to have a political role. All the negotiations going on need to be answerable on an “in time” basis, not through bits of paper that are fed to us afterwards. That should be done by UKREP, but at the moment it has a diplomatic role. If a Cabinet Minister were answerable from this Dispatch Box for all the negotiations at UKREP level, that Minister would be the equivalent of the Deputy Prime Minister. It is a serious post.

Let me give one simple example. The work programme talks about a “safe and secure” EU. I always remember Matthew Parris once saying that a speech or statement should be assessed on the basis of whether anyone would dare to say it if the word “not” were put in front of it. As I read through the document I thought that that would not apply to a single statement in it. It was a case of cut and paste, add the year, and motherhood and apple pie.

The Commission refers to establishing a European public prosecutor’s office

“to fight against crimes affecting the EU budget and protect its financial interests”.

I remember that 10 years ago, during the negotiations that led to the Lisbon treaty, the UK had to fight tooth and nail to make sure that a public prosecutor would operate on a legislative basis that would require unanimity. Ten years ago, we expended considerable political capital on that, because whenever the veto is exercised or unanimity is insisted on something has to be given back at some stage or other. We are now 10 years on, the basis of unanimity remains but the Commission still wants the office, so this never goes away.

The UK Government have said that they are opposed to the proposal. This House has to have a way of understanding how we are going to be against it—what the political negotiating cost will be of our not being part of such a move. I am afraid that an hour and a half of debate on the Commission’s programme—or even chucking the issue to a Select Committee or the European Scrutiny Committee, however worthy they may be—will not give us an “in time” political debate in order that we may really understand the value of something or the price that we pay for it.

Sir Alan Beith: I do not understand why the hon. Lady thinks that Select Committees are incapable of focusing significantly on the issues, obtaining the evidence relating to problems such as those that worry her, and bringing them quickly to the attention of the House. We do it all the time.

Ms Stuart: That would be true were it not for the fact that we scrutinise on a departmental basis, whereas UKREP’s political “give and take” negotiations in Brussels are cross-departmental. I have been present during such negotiations. Representatives say, for instance, “We will give the Germans a bit on cigarette advertising, and in exchange the Danes will be given a bit of an opt-out on fish and the Greeks will get a bit more money to enable

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them to grow tobacco.” The House of Commons will never fully understand that kind of give and take, but, whatever our relationship with the European Union, it needs to start to understand it.

I say to the Minister: yes, continue with the Select Committees, but there should also be a much better “in time” flow of information. UKREP needs to play a political role in the Cabinet. It should have a ministerial function, and should be answerable to the House. Moreover, now that we have Westminster Hall, what is to stop us asking Commissioners to go there in 2014 and answer questions from Members about the Commission’s programme? Why is this a “third party” relationship? We all stop and stare in admiration or astonishment when we see one of our Members of the European Parliament in the House of Commons. Most of us probably would not recognise half of them. That shows that there is a very sad relationship between the two legislative bodies.

In 2014, there will be a new Commission. On the assumption that our wonderful coalition will still be in place then, and that the Prime Minister will not go to the country until 2015, I think that the Government should think seriously about asking the incoming Commissioners to come here and explain their work programme in a way that would allow the House to question them directly and on a cross-departmental basis.

4.47 pm

Sir Alan Beith (Berwick-upon-Tweed) (LD): Although I disagree with some of what was said by the hon. Member for Birmingham, Edgbaston (Ms Stuart), I think that her analysis of the political processes with which we are dealing was fairly shrewd and helpful. I also agree with her that there is something unsatisfactory about the way in which we are currently going about this—not least the provision of a mere hour and a half for the debate, although it must also be said that it is taking place at a much earlier stage than the last one, after two months rather than six, and is taking place on the Floor of the House rather than in Committee. However, I do not think that it would be improved by being extended to six or eight hours; I think that what this tells us is that we need more systematic, subject-by-subject scrutiny, as well as some awareness of the give and take that happens not just in European politics but in British politics: a Department will give way on one thing, and will be given something else by another.

It is to the Minister’s credit that he has engaged in dialogue and sought to encourage Select Committees to play the role that I have described. I can say, not just in my Justice Committee capacity but as Chairman of the Liaison Committee, that our discussions with him have been very useful. However, I think that he has found it a bit difficult—and we have found it very difficult—to build sufficiently on qualities that are already there and available.

When Committees go to Brussels and meet UKREP staff, many of whom will have been seconded to UKREP from individual Departments, they find them uniformly helpful, very well informed, and able to give a fair amount of guidance not only on the content of proposals but on the amount of traction that they are likely to achieve. They can say whether the proposals are worth

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spending time on, or are unlikely to get anywhere. We ought to deploy knowledge of that kind in a process that will engage Committees usefully and in a timely way, so that a British perspective on an issue—the perspective of British business, charities or trade unions, for example—can be brought to bear where it really matters.

We on the Liaison Committee are doing all that we can to encourage Committees to allocate time for such work properly in their programmes. Some of them do it all the time anyway. Most of the subjects for which the Environment, Food and Rural Affairs Committee, for example, is responsible are dealt with at a European level, so the Committee is greatly engaged with it, and other Committees regularly have issues as well.

Ms Gisela Stuart: I am genuinely seeking guidance. Which of the Committees of the House could have looked at ash dieback disease, for instance? People now say that, even if we had identified it, the EU could not have stopped the trade in infected trees early enough. Which Committee in our system could have tackled that, traced it back and said, “We need to do something”?

Sir Alan Beith: In our system, it follows the departmental responsibility, unless it is the kind of cross-cutting thing the Environmental Audit Committee deals with. In the case that the hon. Lady mentions, however, it would probably have been the Environment, Food and Rural Affairs Committee.

There is absolutely nothing preventing Select Committees from seeking to get Commissioners in front of them or from going to Brussels to talk to them. The Justice Committee has questioned Commissioners on our areas of responsibility—for example, we have questioned them a great deal on EU data protection and information proposals. Select Committees have the opportunity to do that kind of work and to report in a timely way to the House. On data protection, for example, the Justice Committee has told Ministers that, in our view, they need to get the Commission to go back to the drawing board in respect of the excessively prescriptive nature of some proposals.

For the process to be engaged in effectively, however, there needs to be a change of attitude in some Departments in recognising what Select Committees can and should do. I think that the Minister is trying to achieve that. The reason I made the rather harsh comment earlier about it being delivery time was that we do not need any more dialogue; we know what needs to be done and what tools are available to help us to do it properly, so let us get on with it.

There is some sensitivity in this matter, as the Minister referred to when he said that Governments do not want to give away their negotiating position. Obviously, they do not, but these are not cold war negotiations or negotiations with North Korea over weapons; these are democratic states with open Governments trying to discuss with each other well-known concerns in each country. What final decisions Departments come to, when faced with having to give up one thing in order to get another, will probably remain late-stage decisions—as is the case every December at the Agriculture and Fisheries Council, for example—but none of that precludes sensible and timely discussion. Governments have talked about publishing lists that make it clear to the House

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and the public what questions and issues they have to resolve on matters that the Commission are bringing forward. We ought to be doing that clearly and explicitly.

Those are issues on which the real knowledge is not necessarily inside the House, but out there among the wide variety of bodies from which we take evidence and which are affected. The Justice Committee has been taking evidence from chief police officers about data protection rules and from organisations involving individuals adversely affected by some of these proposals. We have the means at our disposal to do the work, but we need timely information, guidance on issues that the Government recognise are difficult to resolve and not too much sensitivity about, “Oh, we’d better not discuss it with the Committee yet, because Ministers have not decided what they think.” That kind of obstacle is out of date, given that we are trying to deal with an evolving European situation.

I think that there is common ground between those of us who believe that Britain’s place is inside the EU and those who want to achieve fundamental change in it: while we are in it—as I hope we will remain—we must ensure that the legislative process works for us, and in order to do that we should use the tools at our disposal in the House and the House should have the benefit of the knowledge that the Government have at their disposal.

4.53 pm

Kelvin Hopkins (Luton North) (Lab): As a member of the European Scrutiny Committee, I am partly responsible—I suppose—for bringing this document to the House, so it is important that I say a few words.

The word “work” will have great appeal to the millions of European citizens currently without work, but that is the problem, because none of the many initiatives in the document addresses the immediate economic crisis in the EU or the eurozone and will not solve the problem in the longer term either. We have mass unemployment and we have economic contraction in a number of countries, and more austerity is being inflicted on Greece. Apparently, Greece’s economy is expected to contract by another 10%—God knows what is going to happen in Greece after that. Spain is in serious difficulty and Portugal is going to inflict on its people a fire sale of public assets; it will simply be selling off the family silver at the pawnbroker’s and that will solve nothing in the long term once the money is spent, as it will be. Other countries are in difficulties and there is worse to come.

Chris Heaton-Harris (Daventry) (Con): Action 58 in the Commission’s work programme deals proposes a

“Comprehensive Approach to Crisis Management outside the EU”.

The document says:

“The European Union more than any other international actor, has a unique array of tools at its disposal to promote the resolution of complex external crises.”

It is said that experience can be learned from, and I guess that the European Commission does have a lot of experience and a lot to teach here.

Kelvin Hopkins: I thank the hon. Gentleman for intervening. The document talks about solving external crises, but what about solving the internal crises? The European Commission has not shown much ability to

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do that. The problem is that it has inflicted supply-side measures—most of these are supply-side measures to try to deal with the economic problems—whereas the real difficulty is a serious lack of economic demand. That is the deficiency and macro-economic policy is the problem, as it is failing and is, in most cases, completely misguided. Item 1 in the document refers to an “Annual Growth Survey”—perhaps that ought to be re-titled the “Annual Contraction Survey”.

Item 6 makes the only reference in the whole list to the

“importance of a sound macroeconomic framework”.

I absolutely agree with the importance of that, but there is no sign of such a framework as yet. Indeed, we have the opposite: co-ordinated deflation driving the EU towards deeper recession. Thank goodness this country is somewhat to the side of that. We will of course lose if—[Interruption.] My hon. Friend the Member for Preston (Mark Hendrick) is intervening from a sedentary position, but I cannot quite hear what he is saying. The euro is the primary problem; Greece, Italy, Spain and a number of other countries ought to be able to recreate their own currencies, to depreciate and to reflate behind that.

Mr Edward Leigh (Gainsborough) (Con): The hon. Gentleman is a notable voice of reason on the Labour Benches on these issues. Does he think he will be able to persuade his colleagues to join us in arguing for a referendum on our relationship with the European Union—on whether we should stay in or not?

Kelvin Hopkins: I certainly think we should have a referendum, and I am actively involved in an organisation promoting the idea of one. More than that, we want to get some sensible economic policies adopted, both in Britain and across Europe. We also want to return to some of the common sense that emerged from Bretton Woods in 1944 and led the post-war world to such success, with full employment, rising living standards, growing equality and so on.

Items 9 and 10 refer to state aid. Lecturing those countries in desperate crisis about not indulging in state aids would be completely unacceptable. If they have to use state aids to regenerate their economies, they should be able to do so. Indeed, state aids in the UK should be decided by this Parliament and not by the European Commission. Some may be against state aids in principle and others may think them a very good idea, but we should decide on that, not the European Commission.

Item 13 refers to:

“Reforming the internal market for industrial products”.

That does indeed need dealing with. One of the great problems—the great problem, in a sense—in the European Union is the massive trade imbalances within it. Germany has a gigantic trade surplus with the other members of the EU, including with this country. If we went back to the principles of Bretton Woods, we would expect, in normal circumstances, that Germany would let its currency appreciate—the Americans were rather against that idea of John Maynard Keynes, but it was a sensible one—and that those with trade deficits should be able to depreciate their currencies. That is one of the measures used to get an economy working again.

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I come now to some detailed points. No reference to railways is made in the section dealing with transport, although they are a major force for the future in the transport sector. Surprisingly, after 200 years or so, they have turned out to be the mode of transport for the future rather than the past. I have a great interest in railways, but no reference is made to them in this document.

On cigarette smuggling, we lose billions in government revenues every year because nobody pays taxes on imported cigarettes. They are brought in by the billion, I guess, and if we had proper taxes and duties paid on every cigarette smoked, we would gain billions in revenues—enough to pay many times over for free long-term care for all. Cigarette smuggling is a major problem, which we ought to be addressing as a nation rather than simply through the European Union.

Most of the measures in the list could be undertaken by member state Governments on an individual basis, as they felt they were appropriate. If we wanted to indulge in international agreements, we could do that through bilateral and multinational negotiation. The democratic decisions should be taken in this House, by this Parliament, and by member state Governments in general. We have shown that we can co-operate bilaterally and multilaterally and we do not need a European Commission to determine all these things. I am strongly in favour of democracy, which means democracy at a member state level.

5 pm

Jacob Rees-Mogg (North East Somerset) (Con): It is a great pleasure to follow the hon. Member for Luton North (Kelvin Hopkins), who is the voice of reason on these matters, but it was the speech of the hon. Member for Birmingham, Edgbaston (Ms Stuart) that made me think about the forms and substance of power in this nation. When Her Majesty’s Government introduce the Queen’s Speech—their legislative programme—there is a great sense of funfair and fête. The House has trumpeters; the imperial state crown comes in its own carriage. Rather splendidly, Black Rod comes and the door is slammed in his face to show the independence of the House of Commons from the Executive.

When the European Union sets out its legislative programme, what do we get? When real power is being exercised, what do we see? A dusty, dry and bureaucratically written text is sent up to a Committee Room for a few people to consider and, if they feel like it, they grant an hour and a half—90 minutes—of debate on the Floor of this Chamber. There is no ability for witty speeches to be made by old and young Back Benchers alike or for jokes to be made by the Leader of the Opposition and the Prime Minister. We do not have three or four days of debate to clear maiden speeches out of the way or delve into the thin gruel that now comes from the Queen’s speech—we know where power really lies.

Mr Leigh: We get a speech from my hon. Friend, however, who is himself an ornament of the constitution.

Jacob Rees-Mogg: I am very flattered by that promotion. Perhaps that is the one ornament I can provide to a debate on the European Union’s legislative programme, as it is more thoroughgoing and more powerful than the Queen’s Speech and becomes law more easily and with less scrutiny than anything contained in it.

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Mrs Main: Of course, the other point is that we usually compare and contrast the Queen’s speech with the manifestos of the parties. As for what happens in Europe, we rarely get it in our manifestos.

Jacob Rees-Mogg: My hon. Friend is absolutely right. There is no manifesto; nobody stands for the European Commission saying what they want to do and the programme they wish to propose. No, no—it comes down from on high. Is it not interesting that that which has the appearance of power has none whereas that which has the reality of power uses it as far as possible by stealth?

Annex I contains 58 recommendations, 38 of which are legislative—including some elements that are non-legislative in bits of them. One rather splendidly requires “soft law”, a term that I have not heard before. I wonder whether when up before a judge one could say, “I am not sure whether I broke the law, because it was only soft law—does it have to be hard law?” Another is a negotiating directive that is not law by first degree but becomes law a little later.

Annex II is on simplifications and 17 out of the 18 proposals are legislative. Is it not interesting that when the European Union simplifies, it has to pass more law? It does not just repeal things—not a bit of it—but passes more laws. It reminds me of that quip: “Big fleas have smaller fleas upon their backs to bite ’em, and little fleas have lesser fleas and so ad infinitum.” We go on and on legislating, apparently making things simpler, but it seems to me that we are just being bitten by the fleas of the European Union.

I know that time is short, so I want to go to the absolute heart of the matter, which, as so often, is in the introduction, which refers to the state of the Union speech by Mr Barroso—that reference is wonderfully grandiloquent and makes it sound as if he is President of the United States and a democratically elected and important figure rather than a minor panjandrum—and states:

“The State of the Union speech launched ambitious ideas for the long term framing of the EU—a deep and genuine economic union, based on a political union. This vision must be translated into practice through concrete steps, if it is to address the lingering crisis that continues to engulf Europe, and the Euro Area in particular.”

These are concrete steps about creating an economic union based on a political union; they are not in the interests of the United Kingdom.

5.5 pm

Wayne David (Caerphilly) (Lab): I begin with a general point about the European Commission. I am not a great defender or fan of the Commission, but it is important for us to remember that it is not a legislative body. It does not decide laws; it makes proposals and, usually through a process of co-determination or co-decision, other institutions, such as the Council of Ministers and the European Parliament, are then involved in determining the law. That is when democracy comes into play. It is important to keep that perspective.

Mark Reckless (Rochester and Strood) (Con): The hon. Gentleman says that the European Commission does not make law, but is it not the case that the European Commission has a monopoly on the proposal

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of law, and is therefore an essential and necessary part of law-making? To that extent, in European structures it does make law.

Wayne David: The hon. Gentleman is right. The European Commission has the sole right to initiate legislation. Nevertheless, it does not have the sole right to agree legislation; the initiatives the Commission formulates are the result of discussions in the European Parliament, and increasingly in the Council of Ministers. When we talk about democracy inside the European Union, it is important to recognise that this Parliament has a pivotal role. If anything has clearly come out of the debate, it is the fact that this Parliament does not take European legislation and formulation as seriously as it ought to do.

Mark Hendrick: Is it not the case that the European Commission is made up of Commissioners directly appointed by democratically elected Governments and they are interviewed by Members of the European Parliament before their appointment? Members of the European Parliament are directly elected as well.

Wayne David: My hon. Friend makes a very good point indeed, and reinforces what I was saying.

I welcome the debate because it occurs at a time when Europe as a whole is experiencing a deep economic malaise. Against the problematic economic climate that we all face, we must assess the relevance and appropriateness of the Commission’s work programme. The situation is most acute in the eurozone, as I am sure Members will agree, although of late, it has stabilised somewhat. The situation is still serious in Spain and Portugal, and in Greece it is extremely serious. However, there are signs of improvement; in Ireland, things are starting to get better. Nevertheless—

Kelvin Hopkins rose

Wayne David: Before my hon. Friend intervenes, I take the point that one of the great weaknesses across the European Union as a whole is the macro-economic policy being pursued by member states. There is too great an emphasis on austerity and nothing else. We need to put a firm emphasis on growth and measures to stimulate our economy so that we can work our way to prosperity once again.

Kelvin Hopkins: I want to be persuaded that there are signs of improvement in the European Union. Writing in The Guardian at the weekend, a Greek journalist suggested that the Greek economy will contract by a further 10%.

Wayne David: As I indicated, the situation in Greece is still very serious indeed. As we know, deep-seated structural problems afflict the Greek economy but there are signs of improvement elsewhere. Certainly the contagion that many people feared a few months ago does not appear to be materialising. There are signs of stabilisation, at least, across the eurozone. It is therefore important that the European Commission does as much as it can to make sure that we take that a stage further and have a coherent growth strategy. In that respect, the document

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before us is somewhat lacking, but it does at least recognise the importance of job creation. I cite its opening statement:

“Today’s absolute imperative is to tackle the economic crisis and put the EU back on the road to sustainable growth.”

That is a good starting point. At least there is recognition of the need to put that four-square on the agenda. However, practical measures to realise that goal are somewhat lacking.

One of the positive things about the document is that it recognises the importance of taking forward the completion of the single market. It states:

“A fully integrated and interconnected European Single Market covering telecoms, energy and transport is a prerequisite for competitiveness, jobs and growth. Achieving this requires affordable, accessible, efficient and secure network infrastructure. Accelerating the roll out of the digital economy will bring benefits across all sectors, through enhanced productivity, efficiency and innovation.”

That is particularly true. It is something that the previous Labour Government and this Government have effectively been arguing for.

The importance of the single market, particularly to the United Kingdom, should not be underestimated. In support of that point, I refer Members to the important new-year message from John Cridland, the director general of the CBI, in which, on behalf of British business, he makes it absolutely clear how important the single market and the European Union are to British business. He points out that 50% of Britain’s exports go to other countries in the EU. He argues the case coherently for completing the single market, and says that the EU is vital when it comes to enhancing our international trading relationships. He goes a stage further: he argues that it is vital that we do not just pay lip service to the single market, and that Britain stands four-square behind the European Union and argues the British case consistently inside the decision-making chambers of the EU. He says:

“It’s essential that we stay at the table to bang the drum for businesses and defend our national interest, particularly protecting our world-class financial services industry to maintain our competiveness internationally.”

5.13 pm

One and a half hours having elapsed since the commencement of proceedings on the motion, the Deputy Speaker put the Question (Standing Order No. 16(1)).

Question agreed to.


That this House takes note of European Union Document No. 15691/12 and Addendum, a Commission Communication on the Commission Work Programme 2013, and welcomes the Work Programme as a useful summary that enables the Government and Parliament to plan their engagement.

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Gender Balance on Corporate Boards

[Relevant documents:Uncorrected Oral Evidence from the Business, Innovation and Skills Committeeon Women in the Workplace, HC 754-v, and the Twenty-third Report from the European Scrutiny Committee, HC 86-xxiii.]

5.14 pm

The Parliamentary Under-Secretary of State for Skills (Matthew Hancock): I beg to move,

That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.

The motion is in the name of my right hon. Friend the Secretary of State for Business, Innovation and Skills. This debate gives the House a welcome opportunity to discuss gender balance among non-executive directors of listed companies, and to decide whether to send a reasoned opinion on the European Commission’s recently published proposal, improving the directive, to the Presidents of the EU institutions. In short, we are here to debate women on boards.

The aim of the draft directive is to increase substantially the number of women on corporate boards throughout Europe. The directive sets an objective of ensuring that, at a minimum, 40% of non-executives on the boards of listed companies are female by 2020. It aims to do that by ensuring that companies have transparent, gender-neutral appointment processes in place for their boards. Member states would be required to have a range of sanctions in place for companies that failed to do that. For companies that are listed, over which public authorities have a dominant influence, the proposed objective is to reach a minimum 40% representation by 2018.

Mrs Anne Main (St Albans) (Con): Does my hon. Friend share my concern that there is confusion here between equality of opportunity and equality of outcome? If we are not careful, we could have the same few women on different sorts of boards, rather than genuinely offering opportunities for many women to apply.

Matthew Hancock: My hon. Friend makes a good point. A number of objections have been raised, and that adds to them.

Keith Vaz (Leicester East) (Lab): I am grateful to the Minister for giving way so early in his speech. Has he received any document from the European Union about the wider diversity of our industry and business—for example, ethnic diversity? I fully support the proposals for gender diversity, but it is important to understand that this country and Europe have changed. The ethnic minority communities are not represented on the boards of FTSE companies, but we would like them to be.

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Matthew Hancock: So would I. The right hon. Gentleman makes an important point that is not in today’s document. The importance of diversity on boards is not just about sex, race or background. It is that good boards bring a range of experience, a range of different people, together. Good boards tend to have members with different points of view and with all sorts of different characteristics. All the hard research shows that that is what promotes a good board both for economic and business purposes and for social reasons, as the right hon. Gentleman highlights.

Mr Jonathan Djanogly (Huntingdon) (Con): I recognise this as an important issue and I recognise also that the number of women on boards has increased, which is welcome. Is not the question: why is the European Union dealing with this? Is this not a matter for the Financial Reporting Council, the UK Listing Authority and the Department? Why are we discussing it in the context of the European Union?

Matthew Hancock: We are discussing it because the EU has put forward a proposal. Whether we think it is right that it should do so is exactly what we are debating. I have an awful lot of sympathy with what my hon. Friend says. In fact, I think I agree with all of it, although I am always cautious about saying that I agree with all of anything in case I missed something or misunderstood.

Mr Edward Leigh (Gainsborough) (Con): Will my hon. Friend give way?

Matthew Hancock: May I make a little progress? I shall come to some of these points in detail.

The Government are committed to increasing the number of women on boards. In the coalition agreement we pledged to promote gender equality on the boards of listed companies, and we did so for a good reason. Historically, the proportion of women on boards has been too low. In 1999 women made up just 6.2% of the boards of FTSE 100 companies. By 2004, that was 9.4% and in 2010 it was 12.5%. In 2010 there were only five female chief executive officers of FTSE 100 companies.

As the House will know, we published the review by Lord Davies of Abersoch in 2011 and have been working to implement the recommendations. The Davies review identified several barriers preventing women from reaching senior roles in business. The research shows that people have an unconscious bias to reward and promote people who are like themselves. Davies found that informal networks are highly influential in determining board selections and that a lack of transparency over selection criteria continues to be an obstacle to progress. Davies also suggests that differences in the way men and women are mentored could be giving men the edge over their female peers, for the clear reason that there are fewer women in senior roles to act as mentors and role models for female colleagues.

Meg Munn (Sheffield, Heeley) (Lab/Co-op): I very much welcome what the Minister is saying and the issues he is describing. Will he say something about the differences between non-executive, as opposed to executive, women board members? We know that significant progress has been made in respect of non-executive roles, but

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executive positions are enormously important because they are about the day-to-day running of businesses and what is happening within businesses.

Matthew Hancock: It is true that progress has been slower in executive appointments, but it is also true that where legislation has been passed to increase the number of women on boards—for example, in Norway—the increase has come almost entirely in non-executive roles, which shows that legislation is not a panacea. The Davies review recommended a business-led strategy to bring about the necessary change, and we have been working with business to implement the strategy.

I pay tribute to the 30% Club and Helena Morrissey. They are both pragmatic and passionate about reaching their target of 30% representation on boards. Their approach is one of persuasion and moral suasion to change the culture of business from business, and so far it has been highly effective. The figures clearly show that we are moving in the right direction.

Since Lord Davies’s work was started, we have had a near 50% increase in the number of female non-executives in the FTSE 350. Now, 17.3% of FTSE 100 board directors are female and, importantly, 38% of newly appointed FTSE 100 directors and 36% of newly appointed FTSE 250 directors since March last year have been women. Research by Cranfield School of Management shows that should the current pace of change be maintained, we are on a trajectory to reach 37% of women on FTSE 100 boards by 2020, just shy of the 40% proposed by the commission. We think that that business-led voluntary approach is the right one for the UK and that it is making progress. Central to it is a change in culture at the heart of business, and that is the only way in which progress will be sustainable and long term.

Julian Smith (Skipton and Ripon) (Con): Has my hon. Friend come to any conclusion about why the Labour party failed so dismally to achieve better results on this issue in its 13 years in government?

Matthew Hancock: I have not specifically done any research into that, but it is certainly true that since 2010 there has been a big increase in the numbers. However, I do not think that this is a particularly partisan issue because there is cross-government and cross-party work on trying to make it happen. Crucially, we are following a voluntary business-led approach, because the research shows that diverse boards are better boards.

That brings me to the broader point that was made by the right hon. Member for Leicester East (Keith Vaz). The best boards have a diversity of human behaviour and experience and there is no bigger determinant of an individual’s behaviour than their sex. On average, companies with the most balanced boards out-perform companies with no female board members by an average of 56%, and companies with three or more women on their boards have achieved a return on equity about 45% higher than the average company. Research suggests that just one female director on a board cuts a company’s risk of insolvency by around 20%.

Keith Vaz: I hope the Minister will agree that the message needs to come from the Government themselves. I had many discussions with previous Prime Ministers about the diversity of their trade delegations to countries

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such as India. I understand why the Minister wants to go down the voluntary approach route, but will he give the House an undertaking that the Government will also send out a very clear message in the appointments they make to non-government departments and in the delegations that he and other Ministers lead by ensuring that they are representative of our country: more ethnic minority people, more women?

Matthew Hancock: Yes, I do agree, but these things have to be done on merit. As it happens, later this month I am leading a trade delegation to India, and the business side of that trade delegation will be led by a woman. I hope that I have satisfied the right hon. Gentleman.

Mr Leigh: We all agree that this should be business led, but can the Government block this or will it go through on qualified majority voting?

Matthew Hancock: I will come to the point that, under the principles of subsidiarity in the Lisbon treaty, should there be enough motions in national Parliaments across the Union, that is enough to ensure that the Commission cannot introduce the current draft proposals.

We want a business environment in which woman can and do take their seats at the boardroom table on merit and in which businesses can respond to the varying needs of their sector, size and type of business. We need to tackle those problems without unduly burdening business. That is the substance of the challenge of getting more women on boards. It is clear that the Government have taken a lead on that and things are moving in the right direction, and the current strategy is leading us towards the target that the EU has proposed.

I will now move on to the argument about whether this should be an EU competence at all. The Government’s position is clear: we believe that member states must retain the flexibility to respond to their own individual circumstances. Today’s debate is about allowing Parliament, as distinct from the Government, to express its view on whether this should be an EU competence. The Government are strongly of the view that the principle of subsidiarity should be respected and adhered to. The principle of subsidiarity rests on two tests that a Commission proposal must pass: the necessity test, which is that the objectives of the proposed action cannot be sufficiently achieved by member states acting alone; and the EU added value test, which is that the objectives can be better achieved by action at EU level. Under protocol 2 of the Lisbon treaty, national Parliaments may raise an objection, referred to as a “reasoned opinion”, if they do not believe that a draft proposal is compliant with the principle of subsidiarity.

The Government’s explanatory memorandum, which was sent to the European Scrutiny Committee by the Under-Secretary of State for Women and Equalities, sets out the Government’s assessment of whether the Commission’s proposals meet the principle of subsidiarity. We find that they do not. There is no reason why member states cannot achieve the objectives by acting alone and there is no evidence that value would be added through EU involvement. Indeed, the Commission’s own impact assessment found that the evidence base for

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demonstrating the need for, and proportionality of, binding EU action was “very weak”, stating that members states had a

“proven ability to act in this area”

and that

“a number of Member States had taken measures which appeared to have achieved significant progress”.

I hope that list includes us.

Meg Munn: One way of making progress on this is through the voluntary approach, but Lord Davies has made it clear in speeches I have heard him make that he feels that there must be progress and that, if progress is not made, we should look at a non-voluntary approach. Is the Minister arguing that the Government would be willing to look at that as something the UK would do, rather than something the EU would do?

Matthew Hancock: For the purposes of today’s debate, the Government are arguing that this does not pass the EU’s subsidiarity test. For those purposes, the Government’s position is clear: we think that the voluntary approach is best. Before becoming a Minister, I wrote a book in which I stated that that needs to happen and that we should hold open the possibility of having legislation, but the Government’s position is clear: we should approach this on a voluntary basis.

Mr Djanogly: I thank the Minister for being so generous in giving way. I wholly support what he has said and the Government’s position. However, he might wish to look at the Financial Reporting Council’s most recent annual report, which basically says, “Over to you, Europe. We’ll see what you have to say and then we’ll deal with it.” I think that the FRC needs to be told that it must look at this, because it is an important issue and we want to deal with it.

Matthew Hancock: It might be that this debate and the decision of Parliament that will follow will be brought to the FRC’s attention. I wonder who might do that.

Of course, we share the Commission’s view that fair opportunities for women in executive and non-executive posts should be promoted and we are happy for the EU to disseminate good practice across member states, but it is up to member states to find their own national approaches. Many member states are considering, or have implemented, various and differing national measures on a voluntary basis to facilitate raising the proportion of women on boards. Some have decided on domestic legislation and some, like us, think that we can get there without it. That multitude of approaches is likely to help us find which one works best and has the most benefits and the fewest unintended consequences. The reasoned opinion is intended to set out the views of Parliament separately from the views of the Government, so I am very much looking forward to contributions on that front from Members in all parts of the House.

Let me turn to a couple of the specific questions from the European Scrutiny Committee. The Committee asked for the Government’s view of the Commission’s projection that only 17% of UK listed companies would have 40% women directors by 2020. It is safe to say that the Commission’s projections are rather out of date, because we already have 17% women directors in the FTSE 100.

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The Commission’s analysis is based on extrapolating the increase in the number of women on boards in the period 2003 to 2011 and using a linear progression, but, as we have already discussed, the rate of change increased markedly at the back end of the last decade, and we will be within a whisker of reaching the target that the Commission has set by 2020.

The Committee asked whether the Government consider that the measures proposed by the EU would be counter-productive. It is true that legislation can have unintended consequences, and if an objective can be reached without legislation it is usually better to do so.

Finally, the Committee asked about the outcome of the Government’s consultations on the proposed directive and the progress on negotiations. We are discussing the proposals broadly, but negotiations in Brussels have yet to start.

Fiona Mactaggart (Slough) (Lab): The Minister said—I have some sympathy with this view—that if we can succeed without legislation, that is preferable because there are downsides to legislation. Will he undertake to ensure that we will have an annual report on progress and some suggestions about action that could be taken if the rate of success that he predicts is less than he hopes for?

Matthew Hancock: We have had a report on this. There are constant reports—for instance, I commend to the hon. Lady the 30% Club website, which has a quarterly update of the numbers—and there are many opportunities to debate this in the House. The most important thing is that we should try to get there without legislation, and certainly there does not need to be EU-level legislation, as it is something that this House can perfectly well do on its own. Having more women on boards is right, and it is good business, but it should be the responsibility of this House.

I am grateful for the European Scrutiny Committee’s work. We would argue that legislation is not necessary now. Yes, there is more work to do to promote women on boards, and we and British business are doing it. I commend the motion to the House.

5.32 pm

Mr Chuka Umunna (Streatham) (Lab): Before I discuss the substance of the motion, it is important to make three brief observations for the record.

First, today we debate the need for greater gender balance among those in positions of leadership in business, but in so doing this House and the Government should acknowledge their own failings in this area. Just 22% of the current Members of this House and just four—18%— of the Cabinet are women. That is a disgraceful state of affairs in 2013. Labour Members are proud that 33% of the parliamentary Labour party and almost 40% of the shadow Cabinet are women, but we all need to do better. By all means we should debate the matter, but we in this House are certainly in no position to lecture.

Secondly, the subject of the motion is gender balance, but, as my right hon. Friend the Member for Leicester East (Keith Vaz) said, it is important to note that there is woeful under-representation on company boards in other respects that must be addressed too. For example, according to the latest research from Cranfield university, just 5.7% of FTSE 100 directors are drawn from an

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ethnic minority while the new census figures indicate that 14% of the population is now from a non-white background. How can we inspire young black and Asian Britons to reach for the top when they see so few people who look like them in our boardrooms, never mind here in Parliament?

Thirdly, diversity in executive directorships also matters, as does the diversity of the boards of directors of non-listed private companies. I think that Sir Richard Branson has made that point, too.

We cannot stand idly by on other issues of representation in the leadership positions that people hold in modern Britain. Today, however, we are bound to focus on the issue of gender balance among non-executive directors of listed companies, because that is the subject of the draft directive and the motion.

Two central questions flow from the motion. The first is whether we should take action, and if so what sort, in relation to the gender balance on the boards of listed companies. The second is whether that action should be taken at the level of the European Union. As the noble Labour Lord and former Business Minister in the Labour Government, Lord Davies, made clear in his excellent February 2011 report “Women on boards”, despite some progress under the previous Government, the representation of women on boards in this country is woefully low, as the Minister has set out today.

In 2003 we set up the Higgs review of corporate governance, which called for greater diversity on our corporate boards. In percentage terms, female-held directorships in the FTSE 100 doubled under the previous Labour Government, but I am clear that we must concede, with regret, that despite that, progress was lacking, with—I think the Minister cited the figure—women holding just 12.5% of FTSE 100 directorships when we left office in 2010. As Lord Davies pointed out, if that rate of change continued, it would have taken about 70 years to achieve some level of parity.

As Lord Davies made clear, there is as much a moral imperative to change this state of affairs as there is a strong business case to do so. The Minister has echoed those sentiments. I do not believe that this is a matter of party political discord.

Keith Vaz: I welcome my hon. Friend’s mea culpa in respect of the previous Labour Government. Does he know why we failed to make more of an impact? Was it because of a lack of a message from the then Government to the constituent parts that could have acted upon it, or was it the case, as the Minister has said, that the culture in the business community took so long to change? Is my hon. Friend able to offer an explanation of why we did not do better?

Mr Umunna: I think that some of the things that my right hon. Friend has just mentioned may have contributed to the state of affairs when we left office. As the Davies report makes clear, this is an historically complex issue. The easy conclusion to draw would be that our business community has a high level of overt and outrageous discrimination. I know through my own practice as an employment lawyer that, unfortunately, that still exists in some small pockets of the business community. However, I think that there are cultural factors at play and that the issues that women in the workplace face with regard to child care and flexible working all contribute to the

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lack of progression in the pipeline of appointments in different companies. To tackle that, individuals need to take a lead and have the will to bring about cultural change in individual organisations.

To be frank, one thing for which I do not apologise is our reluctance to move straight towards prescriptive legislative solutions to these problems. I believe that we should regulate or legislate as the last resort, but what has become clear is that, as Lord Davies concluded, there needs to be far more will in the business community, never mind the political community. Another important point that Lord Davies made is that we should be clear about not ruling out taking further action in this House if we do not see enough progress culturally in the business community.

As the report made clear, many of the more than 2,500 responses to the Davies review said that women with the relevant experience were frequently overlooked for development opportunities and that there were differences in how men and women were mentored and sponsored, giving men an edge over their female peers in gaining appointment to boards. We cannot tolerate that in a society that seeks equal opportunities for all, regardless of background. To do an effective job, boards must be made up of competent, high-calibre individuals who offer a mix of skills, experience and backgrounds. I fail to see how our boards can optimise their performance unless they are representative of the population as a whole. After all, in many cases, their customers are the population as a whole. There is a wealth of evidence to back that up, and it is all in the Davies report.

If we accept that the status quo is wrong and believe that it compromises the performance of our companies and our economy, as Opposition Members do, action has to be taken. That is why we endorsed all the recommendations of the Davies report. Those who argue against action often accuse those who argue for it of engaging in tokenism and of promoting diversity over merit. Of course board appointments must always be based on merit, with the best qualified person getting the job, but to suggest that no action should be taken is to presume either that there are not enough women who merit appointment or that there are not enough women who want to be appointed. That flies in the face of the evidence in 2013. There are plenty of women who merit appointment. Diversity and appointment on merit are not mutually exclusive. The problem is that there are barriers and obstacles that must be broken down to ensure that the appointment of women is as usual as the appointment of men.

The Davies report advanced a set of 10 voluntary measures, as the Minister has said, with a view to there being a minimum of 25% female representation on boards by 2015. The Minister went through the most recent update so I will not go through all the details, but there has been not insubstantial progress towards achieving the 25% goal. However, more action is clearly needed if we are to achieve the goals set out in the Davies report. Even if the goal is met, I believe that 25% is a modest aspiration. We should all want companies to make more progress than that. The Government should keep the matter under review and should reserve the right to introduce more prescriptive measures to force faster and greater change if necessary.

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Mr Djanogly: The hon. Gentleman mentions the 25% figure, but that is an absolute figure. He should also point out that 27% of all board appointments in FTSE 100 companies are now being taken up by women.

Mr Umunna: I do not disagree. As I said, I do not think that the progress in this country towards achieving the goals since the report came out in February 2011 has been insubstantial. Whether we are on course to reach the aspirations set out in the Davies report will be clearer next year, when the recommendations have had three years to bed in. At that point, we will form a view on whether further measures are needed. Let me be clear: if we are to continue with a business-led approach, we expect to see much greater progress towards parity.

That is the case for action, but what of the EU? The draft directive produced by the Commission seeks to introduce a new procedural requirement for the recruitment of non-executive directors that would apply to all boards of public listed companies in the EU. The objective is to raise the proportion of non-executive positions held by the under-represented sex to 40% by January 2020 by introducing a new preference rule in the selection of non- executive directors. Under that rule, priority would be given to a candidate of the under-represented sex who was equally qualified in terms of suitability, competence and professional performance as a candidate of the other sex—a man in this case—unless an objective assessment, taking account of all the criteria, would tilt the balance in favour of the candidate of the other sex. That system would not amount to the introduction of a quota per se, as has wrongly been reported in some places, but it would introduce a degree of positive discrimination in favour of female candidates, in the scenario that I have outlined, for non-executive director positions on boards. The Commission decided not to take action in respect of executive directors because it says that it would constitute

“excessive interference in the day-to-day management of a company.”

The Commission argues that action at EU level is justified on a number of grounds, including that if there is not action at supranational level, insufficient progress will be made at national level towards more gender-balanced representation on company boards by 2020. The European Scrutiny Committee rejects that and objects to the draft directive on the grounds that it does not comply with the principle of subsidiarity. The reasons the Committee cites for its view include that it does not feel it is fair to say that member states acting individually will not achieve sufficient progress, given that

“many national measures have been introduced within the last year or two”.

The Committee’s objections to the directive are set out in the draft reasoned opinion that it proposes be sent to the presidents of the European institutions. The Business Secretary, who is once again absent from the House for the debate on this important issue, asks us in the motion to endorse the draft reasoned opinion, with which the Government agree.

The principal problem we have with the motion is that although there may well be strong arguments against the action envisaged under the draft directive, for the reasons that the Committee cites in the draft reasoned opinion, we have heard very little from the Government about how they might work constructively in other ways to advance the cause of equality in company boardrooms along with our European partners.

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The Under-Secretary of State for Women and Equalities, who is also a Business Minister—[Interruption.] Yes, why is she not here? In her response to the report of the House of Lords European Union Committee on the issue, she said that the Government

“agrees that the EU has an important role to play in improving the representation of women on boards.”

If that is the case, surely the Government are obliged to say how that should happen, and to give more of a lead on what that role should be, if we want to lead the way in Europe on the issue.

Given that other European countries are also keen to see more women on boards, and given the extent to which many of our major companies operate across Europe, why have the Government not put forward proposals on what constructive moves European countries could make to work more positively together to promote having more women on boards? That would be good for tackling discrimination and promoting equality, and it would be good for business.

The situation is most unsatisfactory, because the Government have had a golden opportunity to make it clear that the UK wishes to be at the forefront of the debate on achieving greater equality across society both here and in the EU. Instead, without the Government having set out proposals on how member states could work together to improve matters, I fear that the motion will leave people with the impression that yet again, the Government are dragging their feet on issues of equality, diversity and representation. That is the problem. Although we do not propose to divide the House on this technical motion on a directive that is still at an early stage of development and negotiation, we urge the Government to reconsider their overall approach.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. This is a time-limited debate, and the Question will be put no later than 6.43 pm, so if Members could bear that in mind when considering the duration of their speeches, I am sure others would be grateful.

5.48 pm

Alok Sharma (Reading West) (Con): As you say, Mr Deputy Speaker, this is a time-limited debate, so I will keep my remarks fairly brief.

I welcome the Government’s work to increase gender balance on boards. As we have heard, the Davies review was a seminal piece of work that helped to identify how not just the Government but particularly the corporate sector can respond to the challenge of having more women on boards and of increasing the diversity of boards. As the Minister said—the shadow Minister made this point too—diverse boards make for better companies, better decisions and ultimately better outcomes for shareholders. That is something for which every company should be striving.

The Government have absolutely the right approach in getting companies to co-operate rather than coercing them into coming up with artificial quotas or targets—and certainly by not forcing legislation on them. The approach is clearly working. A number of colleagues have pointed out that the number of women on boards, both executive and non-executive, has been increasing over the past

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few years. I suspect that this work will continue. I also commend the Government on the work to increase mentoring, which is an incredibly important part of the jigsaw puzzle in informing not just women but people from ethnic minorities how they can aspire to get on boards and into senior management positions in our companies.

Keith Vaz: I congratulate the hon. Gentleman on his appointment as vice-chairman of the Conservative party with responsibility for ethnic minorities, but I am not clear what he is saying, because so far we have failed on ethnic minority representation. Is he in favour of continuing with voluntary arrangements and hoping that things will get better, or does he think that Government and business should send a much stronger message about boards needing to be made more diverse?

Alok Sharma: I thank the right hon. Gentleman for his comments; let me come to that point shortly.

I am also pleased that last year the Government introduced a set of draft regulations that will require listed companies to set out the gender breakdown of their work force at board level, in senior management and in the work force as a whole. Normally, those of us on the Conservative Benches are not particularly keen on huge amounts of business regulation, but this is a good regulation, which would not be burdensome but helpful in shining a light on companies and getting them to focus on increasing diversity and, in particular, improving the gender balance on corporate boards. Indeed, the regulations, which are due to be introduced, have already been implemented in a number of other jurisdictions across Europe, so this is nothing new. At the end of last year, the Secretary of State—who is now in his place—urged head-hunting firms to break down the number of individuals they place in senior positions by gender. Again, that is extremely good news.

The right hon. Member for Leicester East (Keith Vaz) made the point about work force diversity. Gender balance is one measure of work force diversity, but ethnicity is another. Championing diversity should undoubtedly be about improving both. The hon. Member for Streatham (Mr Umunna) pointed out that just as there is under-representation of women at senior levels on boards, there is also under-representation of those from non-European ethnic backgrounds. He gave the figure of 5.7%. To break that down even further, research by Cranfield university showed that only 4.4% of board members in FTSE 100 companies are ethnic minority male, while only 1.3% are female. Indeed, of the 48 male directors from minority backgrounds, only eight are British. As has been pointed out, the census showed that the proportion of people from non-white or ethnic minority backgrounds is currently around 14%.

The all-party group on race and community has just published a report—it came out at the end of last year—on ethnic minority female unemployment. Let me set out what it uncovered by quoting briefly from the executive summary:

“Discrimination was found to be present at every stage of the recruitment process—when assessing applications, during interviews, at recruitment agencies and also in the workplace itself. Strikingly, it was estimated…that 25% of the ethnic minority unemployment rate for both men and women could be explained by prejudice

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and racial discrimination. Discrimination based on name and accent was also uncovered both in data received and from personal testimony.

In addition, it was found that discrimination based on both gender and ethnicity is taking place in job interviews.”

I think all hon. Members today would agree that that is incredibly worrying.

I appreciate the fact that today’s motion is about women on boards, but may I ask the Minister to consider extending the draft regulations for listed companies to disclose their gender balance—which are due to be introduced this year—to include the ethnic balance at senior level, on boards and in the work force as a whole? As for further disclosure that could be considered—this could be part of a voluntary code—perhaps we could ask listed companies also to break down the total number of job applicants, interviewees and new employees they take on every year by gender and ethnicity. That would help to highlight which companies and sectors ethnic minority candidates and women are just not applying to in numbers, as well as which are not giving them any interviews.

I share the view that people should be appointed to jobs on merit and experience. That is absolutely right. The whole idea of artificial quotas is not particularly helpful. However, what I am suggesting for the proposed new regulations is about taking companies one step forwards, towards focusing on what they need to do to increase diversity as a whole in the workplace, whether in the gender or ethnic make-up of boards or in the workplace as a whole.

I will end, as many others want to speak. As we have heard, at the end of the day, diverse boards are much more effective, and they absolutely outperform their rivals—there are reports out there by McKinsey and many others. If a company’s work force and senior management are representative of its customers, it is much more likely to make decisions that respond to their needs and, ultimately, benefit the business. That is a virtuous circle that every company should be looking to square.

5.56 pm

Seema Malhotra (Feltham and Heston) (Lab/Co-op): I welcome this debate and thank you, Mr Deputy Speaker, for the opportunity to speak. We know that this is a vital debate, on which we need to make faster progress, not just for women but for our economy.

This debate is about non-executive directors on listed companies, which in one way is convenient, as progress has been made in that area. We know that the gender balance in executive roles has remained at approximately 5%, which is woefully low. This is also an important debate for our economy. A McKinsey study in 2010 on listed firms in six European countries and the BRIC countries found a correlation between the proportion of women on a company’s board and its performance. Indeed, across all sectors, companies with the most women on their boards of directors significantly outperform those with no female representation—by 41% in return on equity and by 56% in operating results. Diversity does indeed unlock growth. More recently, that important study has helped to fuel a growing body of work and a consensus that the current pace of change is not nearly

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fast enough. However, there is a risk that even recent progress might not necessarily be a predictor of the future. A reduction in more recent months of the number of women FTSE 100 chief executive officers, down to two, is one indicator of that, and it should be a cause for concern about the pipeline of talent among women going into senior positions.

For years, including before becoming a Member of this House, I have worked in a number of ways to support the progress of women and other under-represented groups—ethnic minorities and people with disabilities—in reaching senior levels in our public life, whether on public boards or the boards of business. This is a passion and an interest that I have taken forward not only in my professional work on leadership and increasing diversity on public bodies, but in a voluntary capacity, through the leadership and mentoring programme run by the Fabian women’s network. As several Members have discussed and mentioned, better diversity in decision making aids better outcomes. To quote Peninah Thomson, the author of “A Woman’s Place is in the Boardroom”, the customer is queen. Women influence the majority of purchases for themselves and their families. A much better understanding of consumer and customer needs through a better reflection of women’s lives at the top of business can only be good for our British companies.

Over the past 20 years, Labour has taken decisive action to ensure that women are better represented in Parliament and in politics, and we know that outcomes can take a generation to deliver. As a result of that drive, we have more women MPs than all the other parties combined, but we still have a long way to go before women are equally represented in politics and before a culture of gender balance pervades political debate and discussion in seminars and in the media. I hope that we will also see an end to all-male panels, to ensure a gender balance at all levels of debate.

It is unfortunate that such progress has not been made at the same pace in all the parties. The World Economic Forum’s annual global gender gap report published in October 2012 showed that the UK had slipped down the international gender gap index from 16th to 18th place. The report states that that was mainly the result of a decrease in the percentage of women in ministerial positions from 23% to 17%.

This debate must not be positioned simplistically in terms of representation versus merit. It is about the outcomes that we want to see, and we must take a stand on the progress that we want to make while taking responsibility for the outcomes. I am not the only one who wants Britain to lead the way in this area, rather than just catching up. It is important that we reserve the right to take more prescriptive measures, beyond the voluntary ones, to enforce faster and greater change at a later stage if necessary. If we are to continue with a business-led, voluntary approach, we expect to see greater progress towards parity, and we must not favour ideology over evidence when it comes to policy. We must consider encouraging greater positive action.

With regard to the reasoned opinion that is the subject of the motion, there might be arguments against the action envisaged in the draft directive, for the reasonable reasons that the Committee cites, but I remain concerned that the reasoned opinion says nothing about how the Government will take a lead in the debate, if not through the directive as currently constructed but in other ways,

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to advance these matters with our European partners. Business does not stop at geographical boundaries, and with Europe as one of our main trading blocs, we should have a voice in ensuring greater representation of women at the top of businesses across Europe.

It is also a matter of concern that the report of the European Scrutiny Committee and the draft reasoned opinion were published only on Christmas eve. Members have had no opportunity to table amendments to ensure that the UK is at the forefront of moves to achieve greater equality in society here and across the EU. Instead, there is a danger that the motion will leave the impression that the Government are dragging their feet on issues of equality, diversity and representation. The message must be that Britain wants to be at the forefront of positive change for all groups that are under-represented on grounds of gender, ethnicity or disability.

6.3 pm

Mr Dominic Raab (Esher and Walton) (Con): The draft directive is unprincipled and counter-productive. It needs to be understood in the context of the progress that has been made towards a more equal society in this country. We are sometimes churlish in acknowledging the strides that we have made, notwithstanding our desire to go further and faster. For example, the UK median full-time gender pay gap has almost halved since 1998. Women in their 20s now earn 3% more than men; women in their 30s earn almost the same. One of the key residual issues—in regard to the pay gap and, arguably, more broadly—appears to arise at the age of 40, when women with young families strive to strike the critical balance between child care and breadwinning.

Even at the top level, however, progress is being made. Figures from Cranfield university, some of which have already been cited, show that the number of female FTSE 100 directors more than doubled between 2000 and 2012. That demonstrates a high rate of change, albeit starting from a low base. Since March 2012, 44% of new FTSE 250 non-executive directors have been women. That is evidence in favour of the argument that the problem is to a large extent an historical hangover that will be corrected over time, although we can argue about how quickly that is likely to happen.

If we look across the piste at this issue, rather than just at what is happening in the boardrooms, we see that, for most modern couples, the juggling act between work and family is not just about women. It is about teamwork and about freeing couples to make their own choices. Let us also recognise that fathers are increasingly doing their bit, with a tenfold rise in stay-at-home dads in 10 years, supporting more and more women to pursue their professional ambitions. A 2011 study by Aviva found that 39% of cohabitating couples now share child care responsibilities equally, or have the father as the main child-carer. It is these grass-roots, bottom-up changes in social attitudes, and not regulatory diktat, that will deliver real change in this country.

In the light of that progress, it is anti-meritocratic in the extreme to suggest that women need quotas to succeed in modern Britain. I have lost count of the number of women who have told me how deeply insulting they find the idea. No one has mentioned this in the debate today. Boardroom appointments, like any other competitive recruitment, should be based on individual

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talent and hard work, not on positive discrimination. The entrepreneur and “dragon” from “Dragons’ Den”, Julie Meyer, powerfully argues that if someone is on a board because of a quota,

“your voice will be neutered and your advice won’t be heard”.

That is what this directive would achieve; that is what it is about. It would force top FTSE companies faced with equally qualified applicants to positively discriminate in favour of women, with fines and court-ordered annulment of appointments as the sanctions for non-compliance. Let us not kid ourselves, as those on the Opposition Front Bench are trying to do. This is a quota, not a target.

Mr Umunna: I have read the hon. Gentleman’s contributions on this topic, and I see that the headline to his recent piece in The Sunday Times was “Sorry, girls, a seat on the board must be earned”. I am sure that many women would find that quite insulting, although I am sure that he did not write it himself. I hear what he is saying about child care—I have said it myself—but does he not accept that there are certain cultural issues at play here? Lord Davies’s report indentified the fact that people seek to select people who are like them to positions on their boards, and that that operates as a barrier to women getting on to those boards.

Mr Raab: I note that the hon. Gentleman did not take issue with the substance of my article—[Interruption.] No, listen to my point. He talked about the headline, but, as a media-savvy politician, he well knows that I had no hand in writing it. He also mentioned group-think, and I think that there is a substantive point there, although it might not be the one that he wanted to make. If he will bear with me, I will come to that shortly.

I was about to make the point that the Commission’s notion of equally qualified candidates is an utter fallacy. As anyone in the real business world knows, a rigorous recruitment process will always identify the best, the brightest, the top person for the job, on merit. My wife works for Google, and she was interviewed 10 times, even after they had got rid of all the other candidates. That is a good example of a cutting-edge, high-tech firm testing and testing until it finds the very best candidate.

The directive is not just anti-meritocratic; it would also damage business competitiveness. No one has yet mentioned that. The Government estimate that it would cost listed companies £9 million between now and 2020, with additional ongoing monitoring costs. There is a far greater cost involved, too, but people are just too politically correct to mention it.

Seema Malhotra: Will the hon. Gentleman clarify what he meant when he said that the measure to increase diversity on boards would damage business competitiveness?

Mr Raab: If the hon. Lady will just have an iota of patience, I will come to the empirical evidence for that in a moment.

I want to cite some empirical research from Kenneth Ahern and Amy Dittmar of the business school of the university of Michigan, which examined the introduction of mandatory quotas in Norway from 2003. Looking assiduously at the impact on the boards, they found

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that the quotas damaged equity, asset and shareholder values in the companies affected. The report also found

“significant decreases in operating performance and higher costs as a result of the imposition of the quota.”

I would be happy to debate this afterwards with the hon. Member for Feltham and Heston (Seema Malhotra) if she wants to quibble with the empirical evidence of this study, but let me cite its findings correctly:

“These results are consistent with boards of directors that lack sufficient experience to act as capable advisors.”

The point is that if we have tokenism of this kind, we get inexperienced people on the boards and it damages shareholder value. Equality and diversity policy must be about widening the talent pool. On that we all agree, and it is through that that we strengthen business competitiveness. Tokenism is utterly counter-productive.

Equally, high-flying women would see minimal benefits from this directive because it focuses only on non-executive directorships. In that sense, I agree with some of the comments of Opposition Members. That, of course, encourages tokenism. If we look again at the Norwegian example—it is the one place in Europe where mandatory quotas were introduced—research in 2011 by Dr Hakim of the London School of Economics showed that Norway, the pioneer of gender quotas, had no female executive directors at all. That is why this measure feels—to me and, I think, to many outside the cloistered politically correct Westminster village—like a political elite debating an issue that is relevant pretty much solely to a business elite. It is largely irrelevant to the challenges of the millions of working women who live in the real world.

Of course, to come back to the point made by the hon. Member for Streatham (Mr Umunna), there are still outdated attitudes in the City. There is a problem of group-think among those from similar backgrounds. I worked in the City before I went into the Foreign Office, and I saw that all the time. It is true in many professions, including—and it would be useful to see more acknowledgement of the fact—some of the politically correct institutions such as the Government Equalities Office and the Equality and Human Rights Commission, which have an appalling imbalance in the gender composition of their staff. If anyone bothered to look at it, they would find it deeply hypocritical that these bodies are constantly lecturing others on the subject.

In terms of the City, which is what the directive is about, raw competitive forces are ensuring that companies look far more carefully at their boardroom composition to maximise their breadth of experience. It is taken far more seriously as a strategic business issue. McKinsey and various other firms have been cited with that in mind. I am confident, given the rates that we are seeing, that a rising flow of talented women into more senior positions will continue to break through the glass ceiling, which I do not deny we residually have.

We need to be careful, however, not to give succour to the very stereotypes of which we want to rid ourselves. The deputy leader of the Labour party notoriously suggested that we might not have suffered the financial crisis if we had had “Lehman Sisters” rather than Lehman Brothers. That sort of progressive prejudice, for want of a better term, is scarcely more subtle or savoury than the conventional kind. It is also—this is

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the interesting point for those who care to look at the evidence—positively refuted by the available empirical material. Research for the Bundesbank—hardly an institution regarded as lacking in rigour—that reviewed German boards between 1994 and 2010 found female board members tended to increase, not decrease, risk taking. The report attributes that to a public policy drive for more female directors, which resulted in the recruitment of less experienced women, as we discussed before. The issue was really about experience, not about gender. A similar review of Swedish boards found exactly the same. This kind of evidence punctures the prejudice promoted by people such as the right hon. and learned Member for Camberwell and Peckham (Ms Harman) that men are somehow innately more reckless than women. Of course it depends on the individual and their personal character, not on crude gender stereotypes, which too often inform this debate and have too often informed this sort of proposal.

I welcome the Government’s reasoned opinion arguing that the directive does not comply with the principle of subsidiarity, but let us be careful not to give the impression that we are making process points here. This directive is corrosive of a meritocratic vision of our society where we are gender blind and what matters is who people are and what they are capable of. If we really care about maximising opportunities for working women, we should be talking about such things as transferable parental leave and other family-friendly policies, which this coalition is adopting. We should be addressing the exorbitant costs of child care—

Seema Malhotra rose

Mr Raab: I will not give way, as I am conscious that others wish to speak and I have already given way to the hon. Lady.

The last Labour Government did nothing to address the soaring costs of child care, which is arguably the single biggest practical problem for working women today, so I am delighted that the Government are shortly to announce proposals to address it. These are the policies that will make a real difference in the real world.

Finally, let me touch on a point raised by the right hon. Member for Leicester East (Keith Vaz), the Chairman of the Home Affairs Select Committee. It is about the tendency of those on the left to label and treat any form of ostensibly low representation in one area or one sector or another as inequality, then bluntly equating it with discrimination. This fails to recognise, in the words of the great British liberal thinker Isaiah Berlin, that from

“the crooked timber of humanity no straight thing was ever made.”

That tendency is destined to stoke up social tensions, not to ease them. If we bow to this and go down the path that quotas and positive discrimination tempt us to go down, we will open the floodgates to special interest politics, with every conceivable social group turning every gripe and grievance into an equality issue. We invite lobbying under the Equality Act 2010 based on gender, sexuality, ethnicity, faith, age, parenthood and even non-religious beliefs, but for those who bother to look at the Equality Act and at the list and number of protected characteristics, it becomes mind boggling.

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Instead of reducing these dividing lines as factors that determine people’s fate in life, we make them decisive. That is a major social mistake and I would argue against it at all costs.

I would like to see us build a meritocratic society where people are not judged according to tick-box criteria—one that recognises that, in a free country, perfect parity of representation is not only utopian but positively dangerous, and one that in the words of the great Martin Luther King judges people

“based on the content of their character”,

not on race, gender or any other arbitrary social dividing line. This directive is a social engineer’s dream and every meritocrat’s nightmare. I hope we send it back to Brussels and never see it again.

6.16 pm

Meg Munn (Sheffield, Heeley) (Lab/Co-op): Before I move on to my substantive point, which will be brief, I have to correct the statement of the hon. Member for Esher and Walton (Mr Raab) that the last Government did nothing on child care. I have to tell the hon. Gentleman that when we took office there was no child care in many parts of the country and there were no options for parents who wanted to work. I know that from my work in the social services sector. I welcome, however, the Minister’s words about the importance of this issue and the fact that companies are hampering themselves by not having diversity, as this means not doing all they can in the achievement of economic output.

My main point is that the issue is not about imposing quotas. I do not want to see the European Union imposing quotas, but neither do I want to see this country or this Government being complacent about how to move towards gender equality—not just in the one area of women on boards, but across our whole culture as well as across our businesses as a whole. We know that substantive and sustained progress has been made more recently in the appointment of non-executive directors, and we should all welcome it. We saw it previously, but there has been an increase in the number. We also know—here we can learn from the experience of Norway—that it is easier to achieve appointments of non-executive directors. Focusing just on that, however, will not help the vast majority of companies, and it will not help us see greater gender equality.

This weekend, The Observertold us about its research on the 100 top private companies, of which only 64 currently publish their board composition. Of those, 73% have all-male executive directors, and we know, too, that 51% have all-male non-executive directors. If we look at the FTSE 250, we find that 71% of companies have all-male executive directors. This relates not just to who is sitting around the board table, but to what is happening within companies. We need a culture that, right from the time a woman first enters a company, promotes those who have talents and supports them whatever their circumstances.

The hon. Member for Esher and Walton made some important points about both parents being able to work, but we know that all too often it is women who take on the majority of the responsibility for child care. We know from all the statistics on the gender pay gap about the disadvantage that comes from spending time away from work, whether it be working part-time or

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taking a career break, which impacts for ever on the woman’s earning capacity. We must look much more broadly at the general culture of work. The hon. Gentleman was right to say that the Government had given the issue a profile, but the discussion in Europe has done so as well, and has enabled people to understand the need for progress. The Government have a much bigger job to do in the world of work overall.

As I said in an intervention, the Government should think seriously about what they, and Parliament as a whole, would want to happen if the progress that is currently being made in relation to non-executive directors did not continue. It is all very well to say that we believe in voluntary arrangements, but if more progress is not made in the future, will the Government opt for more prescriptive measures? If so, what will those measures be?

Several hon. Members rose

Madam Deputy Speaker (Dawn Primarolo): Order. I regret to say that we are a little short of time, so, in order to ensure that every Member who wishes to speak can do so, I am imposing a limit of five minutes for the remaining speakers. The debate will end at 6.43 pm or a little earlier, so I should be grateful if Members would bear that limit in mind.

6.21 pm

Mary Macleod (Brentford and Isleworth) (Con): As others have said, this is an important debate. I spent 20 years working in business in the City, and I often found that for days on end I was the only woman sitting at the table during meetings. I spoke out about that to the many organisations with which I was connected.

As the Minister said, the coalition set out to change the position—that is in the coalition agreement—and it has done so. Many Members have pointed out today how important that change is to the economy. It is good for business, and, of course, it is good for women. We should focus on the incredible amount of talent that exists among women in the workplace throughout Britain, and on using their skills and experience for the benefit of the economy as well as enabling them to fulfil their own potential. Other Members, including my hon. Friend the Member for Reading West (Alok Sharma) and the hon. Member for Feltham and Heston (Seema Malhotra), have already referred to the advantages for business, and I shall not repeat their arguments. Suffice it to say that we need to use those talents, which can benefit individuals, companies and the country as a whole.

I do not believe in quotas; I believe we need business-led change based on absolute merit. My hon. Friend the Member for Esher and Walton (Mr Raab) explained very articulately why that is so important. However, I also believe that businesses should work hand in hand with the Government, who can highlight the issue—as we have today—in order to promote further progress. A great deal of good work has been done, and I congratulate the Minister and the Government on what has been achieved by Lord Davies’s report and the measures that have been introduced to help business.

We have already heard about the improvements in the FTSE 100 and 250. In the last year alone, 49% of FTSE 100 and 44% of FTSE 250 non-executive directors

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have been women. That is real progress. According to the FTSE board report published by Cranfield school of management in 2012, if we maintain the current momentum, female representation on boards could be a record 26.7% by 2015 and 36.9% by 2020. The report identified some great performers. Four women are members of Diageo’s board—44% of the overall membership—while three out of eight members of the Burberry board are women, including the chief executive and chief financial officer, and 33% of Pearson’s board members are women. Some organisations are leading the field, and are already doing a great job.

The role of women in Parliament, and in politics generally, was mentioned earlier. I chair the all-party parliamentary group for women in Parliament, which is determined to change the current position. In 2010, the number of female Conservative MPs increased from 17 to 49. Of course there is more work to be done, but we have made significant inroads. In the recent reshuffle, 50% of the 2010 intake who were appointed to Government roles were women.

The solution to the remaining problems lies partly in what the Government can do to encourage female representation and partly in what can be done by those in business, such as head-hunters, nomination committees and investors. Businesses can nurture talent by encouraging and mentoring women, and by changing the organisational culture of which Members have spoken today. Chief executives should lead from the top. If they really believe in a change in the culture, and if they can drive that change through their organisations, they will make a difference. I recently organised a women on boards leadership forum in the House, and was heartened to hear Antony Jenkins, the group chief executive of Barclays, speak so passionately about what the bank has done and will do in order to make a difference. We need more people like him.

I agree with Members who have said that non-executive director roles are still an issue. As was pointed out by the hon. Member for Sheffield, Heeley (Meg Munn), we must continue to increase the number of women in both executive and non-executive positions.

As for the directive, it is important for subsidiarity to be respected, and for women to be appointed on merit. This is not something on which we should receive directions from Europe; it is something that we can do ourselves, and we have made progress already.

6.26 pm

Ann McKechin (Glasgow North) (Lab): I welcome the opportunity to speak in the debate. As the Minister will know, I am a member of the Business, Innovation and Skills Committee. The Committee is currently undertaking an inquiry into women in the workplace, which will include a review of the recommendations of the Davies report. I do not want to pre-empt our final report and recommendations to the Government, but I will say that we wanted to institute a cross-party inquiry for the very reasons that the Minister gave earlier.

Diversity on boards is good for companies, and therefore good for the British economy. Given the present state of the economy, we should explore every avenue that may lead to increased innovation, diversity and productivity.

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In response to what was said by the hon. Member for Esher and Walton (Mr Raab), let me point out that diversity means introducing different experiences to a board, rather than a single set of pre-judged experiences. The hon. Gentleman advanced the classic Catch-22 argument that those who do not have enough experience cannot join a board, but those who are not members of the board do not have enough experience in the first place. However, we all have to start somewhere.

Evidence given to our Committee has made it clear that there are strong views on both sides about the imposition of quotas, but it has also shown that some companies have taken strategic steps to increase diversity through, for instance, regular reporting on how they are achieving a gender balance. I was interested in what was said by the hon. Member for Reading West (Alok Sharma) about the use of reporting to drive progress. Pay transparency is another key component, as are solid targets and consistent ways of ensuring that progress is made. As with politics, progress can go back as well as forward. Unfortunately, when it comes to membership of the Cabinet, it is going back. It is important to have a clear and consistent policy in this regard.

We should take account of companies that are keeping their heads well down and not joining in the argument because they think that if they do not participate in it they can ignore it. I do not rule out the use of quotas if we find that a persistent sector of the economy does not consider diversity to be integral to the progress of the economy overall, and I think that the Government have a role to play in that respect. I agree that quotas are not the only way of achieving diversity, but I think it important for the Government to think about procurement and about how they spend money on training and higher education.

One other aspect we should be considering is regulation of the London stock exchange. Requiring companies that are members of the stock exchange to look at how they achieve diversity on their boards and throughout senior management is a way of avoiding primary legislation while driving progress. In response to the hon. Member for Esher and Walton, I should add that one of the companies that gave evidence to us, Clydesdale bank, has set a target of increasing the number of women in the three top senior management roles over the next few years. That is one way women can gain experience in executive director roles, as well as non-executive director roles, which have been referred to.

This is a work in progress, but the Government need to be at the heart of it.

David Mowat (Warrington South) (Con): The hon. Lady said that companies that are more diverse grow more quickly and that there is evidence of that. Is this not, then, a self-correcting problem, because all companies need to grow, and those that are struggling to grow and are not diverse enough should surely be doing what is required to correct that? Surely this is self-correcting, so the measures she is describing are unnecessary.

Ann McKechin: A persistent group of people will always resist change if they can. Despite the good track record, there are contrary voices, as we heard during the Business, Innovation and Skills Committee inquiry, stating that men are inherently better at doing these things anyway and that things will be fine. That view should

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not be accepted in the 21st century. The public, this Parliament and the Government should take an active role in engaging with this. Issues of pay transparency, part-time work, child care and business culture should interest us all, whether we are in business or not.

I concur with my hon. Friend the shadow Business Secretary about it being important that we respond positively to the EU over how this country and this Government can make a difference to the economy, which will, I hope, improve if we ensure that diversity is key to our corporate structures.

6.32 pm

Mr William Cash (Stone) (Con): The first question for consideration in this reasoned opinion debate is, in a nutshell, whether the Commission will have to reconsider its proposal, and that issue turns on whether there will be sufficient opinions representing one third of all the votes in national Parliaments—on the basis that each Parliament has two votes. The real question is whether we will really get that. Of course, if we do not, the question that follows is: what will happen? Some believe that the principle of subsidiarity ought to be applied, but there is also the question of whether we should refuse to accept it—but that is for another day.

Secondly, there is a question about whether the directive will achieve its target of 40% representation of female non-executive directors and—this has not been mentioned yet—30% of all directors on the boards of publicly listed companies by 2020, or 2018 in the case of listed public undertakings. Furthermore, there is the question of the exemption for small and medium-sized enterprises—I have not heard that mentioned either—and for companies whose work forces have fewer than 10% female employees.

Thirdly, where national measures have already been introduced in some countries with a view to increasing the representation of women on corporate boards, companies need not apply the new recruitment and selection requirements, but will be required to do so from 2018-20 if they have not reached the 40% target. I put that on the record because, as far as I am aware, none of those three points has been made in the debate so far.

In the interest of brevity, I will simply say that the questions concerning breaches of the principle of subsidiarity are set out in the draft reasoned opinion and I do not need to repeat them. I would like to put several questions to the Minister, but, in order to ensure that we get through what we have to get through in the time allotted, I shall write to him with the questions that the European Scrutiny Committee would like answered, and he can reply to us. I do not therefore have to go through them all now—I would not have time anyway.

I shall make only one more point. Will the Minister tell us whether—and, if so, to what extent—the Government plan to make use of the reasoned opinion in the Council negotiations on the proposal? With that I shall conclude, but I shall be writing to the Minister and look forward to his considered response.

6.35 pm

Julian Smith (Skipton and Ripon) (Con): I refer Members to my declaration in the register of Members’ interests.

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This really is a dodgy dossier of an EU proposal. The reason given for the proposal on page 3 is that it will ease the functioning of the single market, but on page 9 it states that it will address the fundamental objective of gender equality. The polling support by the reliable Eurobarometer is also shaky. In fact, it shows more support for self-regulation than for legislation. The impact assessment states that there is only a weak case for the EU intervening in this area, and there is no rigorous detail of the important work already being done by member states. Only France is held up as a holy grail, with its 40% statutory level—France, with its Strauss-Kahn-style commitment to sexual equality.

More worryingly, the directive proposes stringent mandatory quotas on EU-listed companies, but glosses over the many and complex reasons for the poor numbers of female executives and non-executives. Where is the self-analysis of the EU’s long list of employment rules and regulations, which might have made matters worse for female business leaders over the past few years? Where is the hard-headed debate and evidence of whether current maternity and paternity rules risk keeping women out of the workplace for too long? Where are the apologies for forcing employers into the most soul-destroying transactional relationship with female employees going on maternity leave, rather than encouraging ongoing contact and involvement? EU policies have driven a wedge between employers and female employees.

We should be proud of the work that the Government have done in this area, which I am delighted the shadow Secretary of State recognised. Lord Davies adopted a sensible and pragmatic target of 25% and the focus on transparency has been working. Furthermore, the Financial Reporting Council has now introduced its requirements and there will be a focus on the top 350 companies setting out their aims for the number of women on boards by 2013-15. Furthermore, the Cranfield school of management has recognised that the Government are on track for 37% take-up by 2020.

Mary Macleod: Does my hon. Friend agree that the Women’s Business Council, set up by the Government, and the extra funding for female mentors for female business women will also help?

Julian Smith: I think it will help, and I pay tribute to my hon. Friend’s work on this issue since entering the House.

Transparency is putting pressure on companies to change. The Association of British Insurers and the National Association of Pension Funds are now reporting the number of women on boards and incorporating the figures into the voting information service for investors. Some asset management companies, including that run by the co-operative movement, which Labour Members are close to, have started to request data about board compositions from companies in which they invest. The Government have nudged the private sector to do more, and it is doing more, going with the grain of business and encouraging investor-led decisions to get more women on boards.

The UK is right with its approach of focusing on pipeline. Because companies are being forced to report on the number of women on their boards and the number of female employers, industry groups, mentoring

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groups and board clubs, which have been mentioned, are springing up, and head-hunters have now signed up to a code of conduct.

The UK is also right to look at overall numbers. My hon. Friend the Member for Esher and Walton (Mr Raab) mentioned the drop-off rate when women have children. This is where the EU proposals are so hypocritical. Its equality policies have focused too much on length of leave and rights, and not enough on how to keep women and employers engaged. Here again, the Government have taken the right decision by pushing ahead with right to request, maternity legislation and in relation to child care. As has been mentioned, the main reason the change is happening is the rapid change in social attitudes; we have much more enlightened employers. I know that the City got a hard time earlier in the debate, but in fact the American banks I was working with as a head-hunter were the most forward-thinking on this issue. We also have more enlightened men now. My wife is expecting a baby in a couple of weeks—[Interruption.] Thank you. Only three months ago, I was making the case that she should stay off work for a year to look after our child, but I have since seen the error of my ways and realised that her career is more important. I will be looking to the Minister for nappy changing advice—I hear that he is an expert—in order that I can fill the gap.

Attitudes at home and attitudes in the workplace driven by national Governments nudging business to look at the business logic of maximising women in the workplace are what is going to get us there much better and much smarter than this EU diktat.

6.40 pm

Matthew Hancock: With the leave of the House, Madam Deputy Speaker, I will respond briefly to all the points raised. First, I shall deal with the last one by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith). I do so not least because this morning my wife and I attended the three-month scan of our new baby—we did so together, of course. I can

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understand why the Whips are looking worried about need for paternity leave coming down the track.

I will make three quick points. I think that the whole House has recognised the first of these, but I wish to put it in stark terms. The UK has had the fastest rise in the number of women on boards in the EU, bar three countries. Our rise has been faster than that of Germany, the Netherlands and Spain; we have been faster than all but three of the 27 member states.

On the point about whether it is good business to have women on boards, the evidence is very clear. The Bundesbank evidence was cited and I have read it in detail. It was analysis of the impact on risk, but it omitted the banks that had been rescued because they had been too risky—that is a bit like looking into the risk of the British banking system but omitting RBS. So it is a partial report, but the evidence is incontrovertible.

Finally, I come to the point raised by the Chairman of the European Scrutiny Committee. The rules are clear: if a third of member Parliaments cite a reasoned amendment and reject the proposal, the Commission must consider again. As far as we know, eight member Governments and Parliaments are against, which is just under a third, as there are 27 members, and about a third of member states are yet to be clear in their position. If this motion goes through tonight, that eight will rise to nine. So I have some confidence that he will be happy with the outcome of the process and that we can ask the Commission to look again at this proposal. I commend the motion to the House.

Question put and agreed to.


That this House considers that the draft Directive of the European Parliament and of the Council on improving the gender balance among non-executive directors of companies listed on stock exchanges and related measures (European Union Document No. 16433/12 and Addenda 1 to 3) does not comply with the principle of subsidiarity for the reasons set out in Chapter 1 of the Twenty-third Report of the European Scrutiny Committee (HC 86-xxiii); and, in accordance with Article 6 of Protocol No. 2 of the Treaty on the Functioning of the European Union on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.

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Backbench Business

Corporate Tax Avoidance

Madam Deputy Speaker (Dawn Primarolo): Before I call Mr Ian Swales to move the motion, may I inform Members that 17 Back Benchers are hoping to participate in the debate, so if each one aims to speak for less than 10 minutes, there will not be a need for a time limit? If that does not happen, a time limit will be imposed and it will probably be less than 10 minutes.

6.43 pm

Ian Swales (Redcar) (LD): I beg to move,

That this House has considered the matter of corporate tax avoidance.

First, I thank the hon. Members from all parts of the House who supported my bid for a debate, and the Backbench Business Committee for scheduling it so quickly.

In October, the Government borrowed more than predicted, and the main reason given was lower than expected corporation tax receipts. In November, former City Minister Lord Myners said:

“Corporation tax for an MNC”—

a multinational company—

“operating in the UK is close to being a voluntary payment.”

In December, Eric Schmidt, chief executive officer of Google, said that he was proud that his company had avoided $2 billion of corporate income taxes worldwide in the last year. We have a crisis—a growing crisis of our national tax system operating in an international business environment. Lurid stories of tax avoidance appear almost every week, and Private Eye magazine deserves special mention for its exposure work. Vodafone, the Ritz hotel, bookmakers, water companies, care homes, professional services companies such as Accenture and CSC, and of course American behemoths including Apple, Google, Amazon, Microsoft, Facebook and Starbucks, are just a few of the examples. ActionAid says that 98 of the FTSE 100 companies have a subsidiary in a tax haven. The Government have fuelled the frenzy by doing private finance initiative and outsourcing deals with tax avoiders. We must also consider whether we can trust our media to report all this fairly, given that most of our national newspapers and their owners are themselves engaged in some form of tax avoidance.

Of course tax avoidance is not illegal, but that is why the Government must act. We are a long way from having fiscal union in Europe. Our tax systems are a cornerstone of sovereignty; they are resolutely national and I think they will remain so for as long as any of us are MPs. So when Amazon sat in front of the Public Accounts Committee recently and fielded many questions with the response that it ran a pan-European business from Luxembourg, it was not excusing itself, but vividly illustrating the problem. The French Government are already looking to levy huge extra tax payments from the company. It is totally unacceptable for EU legislation to be used to support national tax avoidance. Arguably some of that already contravenes the abuse concept in EU law, which deals with situations where a consequence was not intended when a law was made.

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I was finance director of a billion-dollar global business in the mid-’90s. What has changed since then is the scale, complexity and aggression of the avoidance schemes. For example, we would never have set up legal entities in countries where we did not trade, solely to avoid tax.

Nick Smith (Blaenau Gwent) (Lab): Sir Martin Sorrell has claimed that the tax that some companies pay is a matter “of judgment”. Avoidance such as that by Amazon, which the hon. Gentleman and I heard about at the Public Accounts Committee, has disadvantaged domestic businesses, which cannot relocate to lower tax regimes and shift their profits abroad. Does he agree that British businesses deserve a level playing field?

Ian Swales: I thank the hon. Gentleman for that intervention. I totally agree with him. The idea that large companies see their tax payments as voluntary, or as some kind of contribution they feel like making, is completely out of order. I will discuss the competition aspects later.

Caroline Lucas (Brighton, Pavilion) (Green): The hon. Gentleman is making a compelling argument about how tax avoidance has grown in recent years. By 2015, the number of staff employed by Her Majesty’s Revenue and Customs will have fallen by 40,000 since 2005. Does he agree that this apparent bid to save money is entirely counter-productive, given that if we had those members of staff at HMRC we would be much more likely to be able to crack down on avoidance?

Ian Swales: The hon. Lady makes a powerful point. I will say more about that later, but I agree with her that we need more resource in the whole area of enforcement.

I was talking about my experience and how we would never have set up legal entities in countries just to avoid tax. Now, News International has more than 150 companies in tax havens. Transfer pricing, management fees, royalties, patent, copyright and interest payments are all ways to move money. The moving of whole businesses and headquarters to new jurisdictions is also becoming much more common.

Let us remember that companies that are prepared to go to elaborate lengths to avoid corporation tax may seek to avoid other taxes, too. If the BBC was making wide use of tax-avoiding personal service contracts for staff, we can be sure that some private sector companies are doing so, too. At a recent Public Accounts Committee hearing, Amazon told me that it raises UK VAT and pays it to the taxman, but it is a Luxembourg company; it also claimed that it did not even know the value of its sales to the UK. Someone wrote to me after the hearing confirming that they could not get a VAT invoice for their new iPad, bought for business purposes. Amazon said that

“we are unable to provide a VAT number as we are registered overseas”.

Bob Stewart (Beckenham) (Con): I thank the hon. Gentleman for giving way and appreciate the opportunity to speak on something about which I know little. If a company does not know the value of its sales in the country, I think that HMRC should estimate them, charge corporation tax on that amount, and let the

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company argue against it to prove that HMRC was wrong. We would then get better corporate tax returns, would we not?

Ian Swales: That is an interesting idea and I thank the hon. Gentleman for the suggestion. HMRC needs to look much more closely at companies that have that type of business model. I agree that we need to start making some presumptions.

Charlie Elphicke (Dover) (Con): Is it not the case that for physical goods, Amazon would have to account for VAT in the UK? The issue is that for electronic goods, it accounts for VAT in Luxembourg, so Luxembourg is eating our VAT lunch.

Ian Swales: That could well be the case, and I shall speak about that later, too.

The person who wrote to me saying that they could not get a VAT number for the iPad they bought for business purposes was told that Amazon was unable to provide one. Had that been made clear to the buyer, they would have gone elsewhere to get a lower net price. Who knows, they might even have gone to Comet.

Amazon’s turnover in Europe is €7 billion. The gross VAT on that, even at Luxembourg’s lower rate of 15%, would be more than €1 billion. Where is it paid? That would be €2,000 a head for every man, woman and child in Luxembourg, but I would guess that is not paid at such a rate. I would also guess that Amazon’s UK order fulfilment subsidiary pays little or no VAT. I ask the Minister urgently to investigate how the business model operates.

Stephen Williams (Bristol West) (LD): I happen to be reading Deloitte’s tax guide to Luxembourg in 2012, which states that the standard rate of VAT in Luxembourg is 15%, but that for printed materials and e-books it is 3%.

Ian Swales: My hon. Friend makes a good point. Amazon has already been found out for charging 20% when it should have been charging 3% on e-books.

Should we care about all that? Yes, we should. There is the obvious point about the loss of billions in Government revenue, leading to higher taxes on other parts of the economy or cuts in services, including the very infrastructure and services on which a tax-avoiding company and its employees might depend. Then there is the question of competition. My previous experience was in the global chemicals industry, but in the internet and franchising age, the unfair effects can hit anyone. Our high streets are now subject to global competition in burger restaurants, bookshops and coffee bars. Local bookmakers have largely disappeared rather than trying to compete with rivals operating from Gibraltar—on paper. Most retailers are competing not only with the unstoppable rise of the internet but with offshore-based giants such as Amazon and eBay. The list of national and local UK businesses that cannot compete will get longer and longer: Comet was the latest to go broke, just before Christmas, probably costing the UK taxpayer £50 million.

Companies that pile up untaxed revenue in tax havens also have enormous financial muscle to reinvest cheaply or take out any other business they want to. It was

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recently estimated that the world’s tax havens hold $13 trillion of cash, which is the total GDP of the USA plus Japan, or enough to buy the entire London stock market four times over. That highlights the compound effect of tax avoidance, as those companies benefit from not paying the tax to begin with and can then use that money to compete ever more aggressively.

The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the Government will get revenue only from people stuck as employees on pay-as-you-earn, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete. A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.

I have been talking about the problem; now I want to explore ideas for action. First, having a national tax system operating in an international business world means that we need to police our financial borders just as rigorously as we police our physical borders for illegal movements of people, counterfeit goods, drugs or any other activity that we want to control. We must say that if a sale or business activity takes place in the UK it should be accounted for in the UK. The idea that an item can be manufactured in the UK, stored in the UK and shipped to a UK customer, but invoiced from Luxembourg, must be challenged.

We should then force transparency into the system. UK companies doing the right thing report their profits and taxes paid to Companies House in some detail, so the blanket taxpayer confidentiality regime in HMRC, which prevents the disclosure of tax affairs not only to Parliament and the Public Accounts Committee but to HMRC’s own non-executive directors, mainly helps the international tax avoiders. It is time for the publication of simple statistics that are mostly available anyway in Companies House, as that would force companies to justify their behaviour. Transparency and honesty with consumers are important. If companies have nothing to hide, they will have nothing to fear.

Nigel Mills (Amber Valley) (Con): Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.

Ian Swales: I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.

Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.

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HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.

Mr Richard Bacon (South Norfolk) (Con): Does my hon. Friend not regard it as extraordinary that in the negotiations between HMRC and Goldman Sachs about some back payments that were due, no legal advisers were present and no minutes were taken?

Ian Swales: I thank the hon. Gentleman for that invention. As fellow members of the Public Accounts Committee, he and I have looked in detail at that case. He is right that such arrangements should not be made.

The UK should take a look at its own role and its relationship with tax havens such as the Isle of Man, the Channel Islands, the Cayman Islands, Gibraltar and so on, which the Secretary of State for Business, Innovation and Skills has described as sunny places for shady people. UK citizens deserve a full explanation from the Government of why they support those places as tax havens and what net benefit they bring to the UK.

It is also urgent that work takes place at EU level to ensure that companies cannot exploit sweetheart tax deals in countries such as the Netherlands and Luxembourg, aided by the free movement of goods, people and capital. It is time properly to enforce the 1997 EU code of conduct on business taxation. I am especially pleased to see you in the Chair, Madam Deputy Speaker, as that code was ratified under your chairmanship. It specifically highlights issues such as doing deals to give lower rates and tax incentives for activities that are isolated from the domestic economy of a given country. The OECD set up a forum on harmful tax practices at about the same time. Both initiatives highlighted the need for transparency. A race to the bottom helps nobody.

Next, the Government should consider disallowing some foreign interest payments for tax purposes. It is depressingly easy to move a chunk of capital to a low tax regime, then export all one’s profits via interest payments. Foreign interest should have to be specifically justified. When the loans were taken out, what was the purpose? Were they proportional to business need and are they now? Who is the lender? A related company deal needs particular scrutiny, especially as the capital may originally have been exported from the UK with no equivalent taxable interest coming back.

The Government should look at setting maximum royalty and management fees, and disallowing them as a deduction if they are disproportionate to profits. There should be an ability-to-pay test; such payments should not be allowed to wipe out UK profits, as we saw with Starbucks. The Government should work with international partners to disallow management fees and royalty, patent and copyright fees unless they go direct to the country where the relevant value was generated. Payments to tax havens could be automatically disallowed. When a company claims that rights have been sold to other countries, it needs to show that a full and fair

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price was paid. Of course, that would crystallise a big tax liability in the selling country. The United States would be especially enthusiastic about such a move, as it is one of the big losers from payments going to tax havens.

Because our tax systems are national, all movements of value across borders, including business transfers, need a price attached to them for tax purposes. The Government must also find a way to ensure that VAT is charged on all qualifying sales in the UK, whatever the country of origin. To go back to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas), we need much more specialist resource in HMRC. A department that brings in 100 times what it costs should not be treated like a normal cost centre; there must be many more invest-to-collect business cases to be made. Maximising our tax revenue is as much about enforcing the rules as about the rules themselves. In particular, a special unit is needed to look at everyone running an internet-based business selling to UK customers, starting with the biggest. It should look at where they are based, their business model and whether they abide by UK VAT and corporation tax rules. We need our rules and enforcement to be up to date with technological changes.

The tax system is way too complex; a whole industry has grown up to find creative ways to avoid tax. When will we see significant output and action from the Office of Tax Simplification? Surely we need radical ideas for cutting through the jungle of our tax system, not just the deletion of obscure, rarely used reliefs. Simplification is badly needed, yet we see even more complexity.

I talked earlier about consumer power. The UK Government are by far the biggest purchaser and grant-awarding body in this country. Is it right that Amazon can get more than £10 million of Government money for a new warehouse in Dunfermline when it is a Luxembourg-based retailer paying little corporation tax in this country, and apparently does not pay VAT on all its sales either? Is it right that Accenture, Capgemini and others win Government contracts when they are named as aggressive tax avoiders? Should HMRC itself have sold its buildings for leaseback to Mapeley, a Bermuda-based company? Is it not time that we recognised in financial assessments that most of the profits from private finance initiative and outsourcing contracts are now disappearing offshore?

John Pugh (Southport) (LD): My hon. Friend is giving a list of remedies for tax avoidance schemes. Would not most of them have been caught by a general anti-avoidance rule?

Ian Swales: I thank my hon. Friend for the intervention. I am not familiar enough with how such a rule would be structured, but the idea would certainly be helpful.

Caroline Lucas: May I suggest that all Members look at the private Member’s Bill introduced by the right hon. Member for Oldham West and Royton (Mr Meacher)? The Bill refers to the importance of a general avoidance principle rather than rules. The problem with rules is that people can bend them and get round them. A general avoidance principle is much harder to get round and has much wider scope. That is the route the Government should be taking.