Select Committee on European Communities Report


32.  UNDECLARED WORK (7663/98)

Letter from Lord Tordoff, Chairman of the Committee, to the Rt Hon Frank Field MP, Minister of State for Social Security and Welfare Reform, Department of Social Security

  This document was considered by Sub-Committee A (Economic and Financial Affairs, Trade and External Relations) at its meeting on 9 June. Although I sifted the document to the Sub-Committee for information only, and it has therefore been cleared for scrutiny purposes, it relates to a subject which is becoming increasingly important in the Sub-Committee's current enquiry into the reform of the Structural and Cohesion Funds. A number of the Sub-Committee's witnesses have drawn attention to the various definitions of unemployment in the Community; as you know, the United Kingdom has a relatively rigorous definition of unemployment, and some witnesses have expressed concern that this does not assist the UK's access to some lines of Community funding. The Sub-Committee has therefore asked me to write to you to ask whether you see the problem of undeclared work as being of significance to the allocation of Community funding through the Structural Funds, since this matter is not touched on in the Government's explanatory memorandum.

  The Sub-Committee also noted that in the "country fiches" (pp 21-24) in the Commission's document, that apart from Luxembourg the information on the UK is the most sketchy. Whilst I have outlined the Sub-Committee's principal concern in the preceding paragraph I wondered whether you might like to comment on this point also.

10 June 1998

Letter from the Rt Hon Frank Field MP, Minister for Welfare Reform, Department of Social Security, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 10 June asking for comments on points raised by Members of Sub-Committee A during their consideration of the European Commission's Communication on Undeclared Work.

  You asked about definitions of unemployment in the EU and the question of whether the problem of undeclared work is of significance to the allocation of Community funding through Structural Funds. Unemployment across the Community is measured on a common basis to the definitions used by the International Labour Organisation. This should mean that it is possible to compare unemployment rates across the EU and that there are no distortions which could affect the allocation of Structural Funds.

  You also asked for comments on the "country fiches" at the end of the document. The information on the UK in the fiches does not appear much more sketchy than the other countries. The information on the UK in the preceding tables is lacking in detail but I am not aware of any approach by the Commission to a Government department for information before the report was compiled.

  There is little we can add to the fiches. By definition what we can say about the characteristics of people and jobs is very limited. We do not compile our records of tax evaders on the basis of personal characteristics. It could be argued that to do so would not present a cost-effective use of our compliance resources. We are aware of particular trades or industries in which tax evasion is more likely to prevail, the construction industry being a good example. The Labour Force Survey gathers information on all workers but not on whether it is declared or undeclared.

  I agree that there should have been greater detail on the Measures/Policies section to reflect UK action in tackling the problem of undeclared work. These will be covered in any UK response to the Commission.

2 July 1998

Letter from Lord Tordoff, Chairman of the Committee, to the Rt Hon Frank Field MP, Minister for Welfare Reform, Department of Social Security

  Thank you for your letter of 2 July (in response to mine of 10 June), which was considered by Sub-Committee A (Economic and Financial Affairs, Trade and External Relations) at its meeting on 14 July. In paragraph 2 of your letter you say that "unemployment across the Community is measured on a common basis to the definitions used by the International Labour Organisation. This should mean that it is possible to compare unemployment rates across the EU and that there are no distortions which could affect the allocation of Structural Funds".

  As I mentioned in my previous letter, this has been a matter of some concern to some of the witnesses in the Sub-Committee's current enquiry into the reform of the Structural and Cohesion Funds. The Sub-Committee therefore thought that you might be interested in the following observations made by witnesses:

  The CBI considered that the ILO measure of unemployment reflected labour market structure as much as economic prosperity, and was therefore not a very good international comparator. The CBI recommended that if unemployment were used as the criterion, it should include measures of long-term unemployment, as this highlighted the underlying problems of local labour markets. The CBI pointed out that the new Objective 2 was wider than its predecessor, and thought that it "should therefore be accompanied by careful use of a wider selection of eligibility criteria. GDP per head is a better measure of competitiveness than unemployment, and is available in the UK at the county level . . . We believe this should be used, together with other measures of competitiveness (or barriers to competitiveness) in assessing eligibility. These could include measure of deprivation, dereliction, productivity and changing employment patterns".

  The Convention of Scottish Local Authorities (COSLA) also recommended GDP as a more accurate reflection of need. COSLA pointed out that some of the factors in the calculation of unemployment were not consistent across Europe, and therefore Britain would be singularly disadvantaged. It also argued that "if GDP is accepted as the basis for allocation to the national Member States that within the Member States national governments should have the flexibility to . . . allocate the resources (Q 85). COSLA made the additional point that Britain had a low wage economy linked to relatively low unemployment, and could thereby be further disadvantaged in comparison with Member States with nominally higher unemployment but also higher waged economy (Q 101).

  The Alliance for Regional Aid (ARA) said that Britain was particularly disadvantaged by the way in which the ILO measure was constructed. At a superficial level the ILO criteria were internationally standardised, "but the problem is that in every Member State the figures that you get out are biased by the way that the society security system works . . . in Britain . . . we have mechanisms in the social security system which divert long-term unemployed people out of unemployment into long-term sickness. When they go on various sickness benefits, particularly incapacity benefit, they are no longer required actively to seek work and therefore they do not meet the ILO criteria". The ARA also drew attention to research by the Institute for Employment Research at Warwick, which indicated that the ILO measure encapsulated about 50 per cent of Britain's unemployment, compared with 75 or 80 per cent of that of Germany and France and slightly over 80 per cent in the case of Spain. It said that "hidden unemployment" was especially concentrated in the traditional industrial areas of Britain, the old coal mining, steel and heavy engineering areas (Q 162).

15 July 1998


 
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