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Lisbon Special European Council

9.55 p.m.

Lord Wallace of Saltaire rose to ask Her Majesty's Government what are their objectives for the forthcoming Lisbon Special European Council.

The noble Lord said: My Lords, this is a formal Question to mark the forthcoming Lisbon Special European Council on which Sub-Committee F, which I have the honour to chair, of the European Union Committee has prepared a very short report--partly as a way of drawing the attention of the House to the importance that the British Government and other governments place on this new European Council, and partly as an opportunity to call on Ministers to explain how they see Britain's objectives in the light of the presidency paper that we have before us.

I should like to note that this is partly a British initiative. We were told that the idea of a Special European Council had been raised first at a meeting between the British Prime Minister and his Spanish counterpart, Mr Aznar, in April 1999. The British have given very full support to the Portuguese presidency in planning this European council. It is fair to say that in this brief report my sub-committee wished to welcome this proposal, but with a number of reservations.

The Special European Council is of course part of a series of European Union initiatives on employment. I hope that, when he responds, the Minister will explain further to us that it is also part of reorienting European co-ordination of economic and employment policies in the light of the single currency, of which Britain may

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in time perhaps become a member. If I understand it correctly, that is also a part of the purpose of these successive European summits.

I remind the House that there was the Luxembourg special jobs summit of 1997; the subject was discussed again and included in the communique of the British-chaired European Council in Cardiff in 1998; and a number of these issues were raised again in the communique of the Cologne Council in 1999. So we are well on the way to this redefinition of using the European Union as a means of focusing attention on the need to shift economic policy.

There are two possible interpretations of what Lisbon may or may not be about. I understand from the CBI paper and the paper from the Council of Economic and Finance Ministers--which my noble colleague on the committee, Lord Tomlinson, will talk about in more detail--that the first interpretation is of an OECD-style consultation, in which heads of government meet for mutual education and consciousness raising--a kind of two-day seminar based on well-prepared papers intended to reshape the conventional wisdom of economic policy. That seems a highly desirable and very useful ongoing process.

The second interpretation--one sees a lot of this in the presidency paper--is what one may describe as the old European Community style of agreeing to detailed programmes, action plans, initiatives, new working groups, European networks and new departures of one kind or another. That is also well documented in the presidency paper.

We all recognise the need for European governments to discuss together in detail the linked economic, technical, educational and social challenges we are facing, and how far we are able to converge our national responses to these.

The presidency paper--and indeed the Prime Minister's Davos speech, which touched on many of the same issues--talked a great deal about the challenge of the information economy. The British are very proud that we have maintained a much lower unemployment rate than that of most of our partners in the European Union over the past few years and wish to persuade our European partners that greater flexibility in the labour laws is a positive social benefit, not a danger to the social fabric.

The presidency paper, and much more the ECOFIN paper, talk about the problem of maintaining public investment and research spending on fundamental scientific technological research. There are also a number of references--not, I felt, sufficiently specific--to the problems of the pensions overhang and paying for welfare provision under the conditions of a changing demographic balance across the European Union. British funding for the future pensions overhang is very different from that of a number of continental countries, which will face some real fiscal problems in the coming years.

The presidency paper also contains a number of references to the changing social and ethnic balance in the European Union and the need for more positive

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action on social exclusion. On another aspect, Sub-Committee F is already examining the Commission's new draft directives on anti-discrimination under Article 13 of the Amsterdam Treaty.

My hesitation, and that of others on the committee, can be summarised under two heads. The first is the need to avoid Anglo-Saxon complacency, or even Anglo-Saxon triumphalism; the second is the need to avoid spawning a whole shoal of new committees, working groups, European networks, programmes, initiatives, etc.

I first read the presidency paper the day after the noble Lord, Lord Williamson of Horton, had given evidence to the full European Select Committee of this House on the reform of the Commission. The strongest message he gave was that one must at all costs avoid adding to the tasks which the Commission is asked to conduct. What worries me partly about the presidency paper is that it lists a whole new raft of potential tasks for the Commission to take on.

I worry particularly about some of the new proposals for adding to European-level networks in science, technology and elsewhere. I was checking yesterday from my own experience just how many networks the European Commission supports in the field of social science. Different directorates-general of the Commission support three different networks in political and social science without proper co-ordination among them, and in at least one case there is duplication of a well-established network--established by British universities with our colleagues in Germany, the Netherlands, Scandinavia and elsewhere entirely without Commission involvement.

Anglo-Saxon triumphalism is something to which British governments of all habits over the past 20 years have easily fallen prey. As the Minister knows, today's Daily Mail contains a triumphalist article by our good friend, Andrew Neil, celebrating a British success story. It states:

    "It is by no means impossible that, on present trends, by the end of the decade, Britain could overtake Germany to be the third largest economy in the world".

It is wonderful stuff, but he does not mention the fact that the current figures are partly the result of an immensely and absurdly over-valued pound. That is partly why, according to the figures, we appear to have overtaken the French economy. I noted, however, a story in the Financial Times--based, I assume, on a briefing from No. 10--in which the European Union is,

    "urged to match America for dynamism".

The article goes on to state that,

    "Not all the benchmarks would be related to America".

There is a tendency in Britain--sometimes the Government are as prone to it as their Conservative predecessors--to believe that one travels across the Atlantic to learn but one travels across the Channel to lecture. I hope that in Lisbon the British Government will avoid that temptation. The successful and very rapid adaptation of the French and German economies currently under way is, after all, rather impressive. If one reads what one understands to be a

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paper by the Economic and Finance Ministers, a number of sharp criticisms are made of the British record. For example, it is remarked that public investment in Britain is not only historically low but fell by 10 per cent in 1997 alone. It is also observed that the British record in paying for fundamental research is no better than some of its continental neighbours. Dare I add that the British Government are not doing terribly well in renewing the intellectual capital in our universities as the generation of the 1960s, to which I belong, comes up to retirement and there is a failure to recruit or fund research students of sufficiently high quality to fill those university posts as we retire?

Scattered throughout the presidency paper is some painfully politically correct Blairite language. We are told that the intention is to mainstream the concerns for social inclusion, and there is reference to benchmarking, best practice and the information society. When I saw the reference to,

    "a Europe-wide learning society",

I wondered why it did not say,

    "a Europe-wide lifelong learning society".

Happily, as I turned the page I noted that "lifelong learning" appeared. By the time that I finished the presidency paper I was reminded of my Sunday school days and the song about the need to shine with a pure, clear light. In a sense, I thought that Europe bid us shine with a pure, clear light like a beacon economy blazing in the night, with the continent in darkness and Anglo-Saxons shining, benchmarking and adopting best practice for others to follow our line. I hope that the British Government will avoid that temptation.

I also noted in an earlier European Voice story on the preparations for this conference that an official of one government, possibly our own, had described the presidency paper as very much a Christmas tree on which every national government had hung its own particular decorations. We read, for example, that it is intended to bolster European research and development networks under the Framework programme but also under all other programmes. There is to be an e-commerce European initiative; a new action plan on employment strategy in the information society; the creation of a European area of lifelong learning; and the development of a European Research Area--perhaps the Minister can explain what that is--that is open to the world.

There are to be expanded Socrates and Leonardo da Vinci programmes with increased mobility of teachers, students and training staff. Sub-Committee F looked at the proposals for the new Socrates and Leonardo da Vinci programmes last year and was not wholly persuaded that, as then presented, they were viable; and it was certainly not persuaded that, as currently constructed, they were to Britain's advantage, since the imbalance between those wishing to study in Britain and those from Britain wishing to study elsewhere in the Community was growing.

There is also to be a European charter of basic skills and a European passport for information technologies. On page 13 of my draft of the presidency paper I see the wonderful phrase,

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    "We propose the definition under elaboration of the policy for support of enterprises with a view to preparation for the new multi-annual plan".

I am sure that that is entirely clear to the Minister as it is to me.

The heading "Renewing the European Social Model" also sets some alarm bells ringing. It states:

    "The contributions secured in this way could be used to develop a European social agenda, along lines to be defined during the French Presidency".

During the Delors presidency I was involved in a number of study groups on whether or not one can define a European social model and a European social agenda. The conclusion of most groups, including at a long weekend with M Delors, was that we cannot define a single European social model or a comprehensive European social agenda.

Reading that,

    "the problem of social exclusion ... requires major co-ordination at the European level",

most members of the committee considered that the principle of subsidiarity had been written into the treaty. We hope that Her Majesty's Government will insist that we talk about these matters at Community level but do not transfer detailed co-ordination to Community level on the lines suggested in some of the phrases. Those remain national responsibilities for national action with co-ordination and discussion at Community level.

I was extremely happy, therefore, to read the excellent CBI paper which referred to,

    "the reform and modernisation of the labour market and social security systems",

but stated that we need,

    "to be convinced that the Commission is prepared to adjust its work plans accordingly".

The paper continues:

    "We are very concerned ... [about] vague indications of a new social agenda to be developed under the French Presidency".

It adds that the CBI is sceptical about the effectiveness of new European networks.

Our sub-committee welcomes the forthcoming European Council with some hesitations. The report states:

    "The Committee remains uncertain of the underlying rationale of the Lisbon Special European Council".

I look forward to the Minister persuading us that the British Government at least have a clear sense of what the rationale is.

10.11 p.m.

Lord Tomlinson: My Lords, I thought that I was somewhat sceptical about the Lisbon presidency paper. However, by comparison with the noble Lord, Lord Wallace of Saltaire, I appear to be almost euphoric.

The presidency paper contains broadly supportable objectives. It presses many of the right buttons: competitiveness; enterprise; and social cohesion. In its framework, it emphasises the flexibility on the basis of open methods of co-operation, information sharing

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and exchange of best practice. Against that background, I welcome the evidence of the Minister when he appeared before the noble Lord's sub-committee. He gave a clear undertaking that against that background, the EU role should not be prescriptive but enabling.

However, my rather lukewarm welcome of the presidency paper is still subject to caveat. I want the Commission, in all the present circumstances, to focus almost all its energies on the intergovernmental conference, enlargement and the necessary programmes and policies for internal reform. For the Commission to observe its own injunction of doing less and doing it better, Lisbon must not lead to a mass of new administrative burdens being placed on the Commission.

The report of the Select Committee, introduced by the noble Lord, Lord Wallace, does not address the fifth section of the presidency paper--a section subtitled Macro Economic Policies for Sustainable Growth. I am glad that the report does not address it because that section of the presidency paper was somewhat woolly if one considers it in a fairly charitable light. For example, it talks about the importance of continuing,

    "to monitor budgetary policies on many fronts, in particular endeavouring to ... improve methods of monitoring expenditure, debt and deficit, as regards not only level but also content".

I believe that it would be a great improvement on the present circumstances if the Commission were able to do that adequately for its own budget, let alone accepting it as a responsibility for everyone else's budgets.

When I look at other parts of the injunctions in paragraph 5, I become even more worried by references to the need to,

    "Improve the quality of public spending",

and when going on to examine tax policy, it specifically refers to the need to,

    "Develop tax co-ordination, endeavouring to overcome problems of harmful competition as yet unresolved".

I should have thought that that was one of the issues which at previous summits we have struggled to keep off the agenda, rather than welcoming it on the agenda.

While supporting the thrust of the presidency paper, I was not fully convinced by its macro-economic policies for sustainable growth. But since the presidency paper, since Sub-Committee F met and since the report of the Select Committee was published events have moved on. On 13th March, the ECOFIN council published a separate contribution to the Special Lisbon European Council, a document which I believe is much sharper, more focused and which can make the economic aspects of the deliberation in Lisbon more meaningful.

It is a shame that the document was not available earlier, because I am convinced that Sub-Committee A would have wanted to participate in examining the preparations for the summit had it had the benefit of that ECOFIN paper. It is important that your

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Lordships' House should have a flavour of the ECOFIN contribution as opposed to the presidency paper.

At the beginning, it assumes that:

    "efficient markets greatly reinforce the ability to invest in the human and physical capital needed for growth. They are the fundamental source of innovation and dynamism".

In the next paragraph, it states that:

    "the EU needs to take advantage of its favourable growth prospects to accelerate the necessary structural reform".

In paragraph 3, it refers to the structural reform that is necessary, particularly in labour markets and in the modernisation of social security systems. It deals specifically with the need to improve human capital formation by adjusting education systems and institutions to meet the requirements of the new economy and a society built on innovation and knowledge.

That is a radical and, I believe, substantially necessary agenda. It meets, as much as does the CBI paper to which the noble Lord, Lord Wallace, referred and which I, too, appreciated, many of the demands that industry is making, and far more so than did the original presidency paper in isolation.

The paper produced by ECOFIN reminds us in clear language that following the various summits in Cardiff, Luxembourg and Cologne, all producing their own processes,

    "No new processes are needed".

It goes on to state that the co-ordination and mutual coherence of the existing procedures need to be enhanced in order to be fully effective.

So you could continue through the paper. At paragraph 7, ECOFIN reminds us that:

    "Efficient financial markets contribute to growth and employment by better allocating capital and reducing its cost".

Further on, it examines the list of priority actions that are needed. I shall mention one, which appears at paragraph 9, that:

    "facilitating the widest possible access to investment capital on an EU-wide basis, including for SMEs, by means of a 'single passport for issuers'",

is fundamentally necessary.

I hope that the request made by ECOFIN in its paper that it be mandated to make an urgent progress report and to set a tight timetable with firm commitments for further action is one that the Prime Minister will agree to readily when he meets with his colleagues in Lisbon.

I draw to your Lordships' attention to two other points from the ECOFIN paper. Again, it addresses one of the fundamental demands of the CBI in a way that the original presidency paper did not. In talking about risk capital the ECOFIN paper acknowledges that:

    "Efficient risk capital markets play a major role in the development of innovative, high-growth SMEs [small and medium-sized enterprises], the creation of new and sustainable jobs, and economic growth".

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Therefore, it calls specifically for the implementation of the risk capital action plan. Paragraph 12 calls on the European Union to pursue and broaden its actions in favour of small and medium-sized enterprises.

Finally, I turn to the quality of public finances. The ECOFIN paper states specifically that there should be a reorientation of government spending to the greater relative importance of expenditure in capital accumulation, both human and physical, and to the support of research and development, innovation and information communication technologies. In relation to this appeal for the reorientation of spending towards the question of capital accumulation, I believe that, as he approaches his Budget, Mr Gordon Brown is as well placed as any to respond positively to this call.

I believe that, had it been produced earlier, the ECOFIN communication would have been one on which the Select Committee would have taken evidence and would perhaps have produced a more positive response to the whole process of the Lisbon summit. As I said earlier, I am sure that Sub-Committee A would have wished to be involved in preparing a report to your Lordships' House. Tonight, I can say only that in a personal capacity ECOFIN has enhanced significantly the importance of the Lisbon summit by producing a report which I am sure will be as welcomed by the Portuguese presidency as I hope and believe that it will be, and certainly should be, by Her Majesty's Government.

10.22 p.m.

Lord Moynihan: My Lords, I thank the noble Lord, Lord Wallace of Saltaire, for introducing this debate. I must say that I find it difficult to resist participating in debates which he has initiated. I also welcome this opportunity to discuss the forthcoming Special European Council which will start in Lisbon in eight days' time.

We have been told and have heard this evening that the agenda, with its emphasis on economic and social renewal, concerns the promotion of economic dynamism and social justice. Those are fine words and we have heard some of them before. However, this evening I hope to discover how the Government intend to ensure that they will be translated into action which has a beneficial effect on Europe's workers, residents and citizens.

One of the key ingredients to Europe's economic success will be to build on the European Union's very real achievements, in particular, the creation of the largest single market in the world and of a potentially powerful competition policy to back it up. I hope that this will be given the priority that it deserves at the summit. The single market is the key to delivering an economic climate that stimulates growth, competitiveness and innovation.

Since the creation of the internal market, the EU has achieved far more than the elimination of internal tariff barriers. We have seen mutual recognition of standards, cuts in export bureaucracy, the abolition of hundreds of tax forms, the scrapping of border

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controls on goods and people's ability to live or work anywhere they wish in the European Union increasingly--indeed, virtually--without restriction.

Meanwhile, the Commission has extensive powers to act in the interests of the consumer. It can scrutinise and if necessary block anti-competitive mergers. It can outlaw cartels and abuses of dominant position. State subsidies are restricted. The Commission's strategy set out last year to build on these achievements was most welcome, particularly the planned further liberalisation of the telecommunications sector. This is a vital step in meeting the challenges set by the new knowledge economy and in particular the Internet. More needs to be done to ensure that telecommunications charges fall further so that the Internet is increasingly accessible to all.

Yet in the single market a number of major areas are still under-performing. It is little wonder that a survey by Andersen Consulting last year showed that nine out of ten executives believed that much more needed to be done to make the single market a reality. I was therefore glad to see that in its contribution to Lisbon, An Agenda for Economic and Social Renewal, the Commission recognises that these areas require urgent attention to improve the European Union's medium-term economic outlook.

The Commission has identified a number of challenges to be addressed by the summit, including the employment challenge, the skill gap and the main social challenges, including the massive costs of under-employment, poverty and social exclusion, as well as the challenges of an ageing population and its implications for Europe's welfare and pensions systems.

Those challenges coincide with the emergence of a new economy, an economy which is intrinsically global. Electronic commerce is breaking down national barriers to trade. This is already impacting on every facet of life, and it will radically transform our economies and societies. Indeed, it has already begun to do so. The Lisbon Summit is an opportunity to decide how that transformation can be managed to our advantage and how our policies should be re-oriented accordingly.

It is also the time for Europe to respond to the new reality of new technology. This is the age of the small unit, the individual on the Internet, small business using e-commerce, low tax and low regulation and of the nation state exploiting the opportunities of the new global economy. The right response in Europe to these trends is to look outward, not inward. It is to decentralise, not to centralise. Lisbon is an opportunity to find ways to help European businesses to compete and to create a real Europe for consumers, to secure greater dynamism for the European economy and to increase enterprise and encourage entrepreneurs.

In the short time available, I should like to ask a number of questions about the internal market and trade policy which have been identified in the presidency paper as priorities in achieving economic reform. Much more needs to be done to liberalise trade

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and to complete the internal market. The main task of the European Union should now be to promote the economic performance of European businesses and the welfare of its inhabitants. Can the Minister say what action the Government will press for at the summit for a genuine internal market to be completed in all sectors of industry, including financial services and the free movement of capital, utilities, transport and electronic commerce? An end to state subsidies for airlines and a strengthening of public procurement rules, so that taxpayers can be assured of value for money and businesses can compete on a level playing field, must surely be key elements of this. Does the Minister agree with the employers' organisation, UNICE, that momentum should be re-established through the setting of a new, clear and realistic deadline of 2002 for the completion of the single market?

On competition, what action do the Government intend to press for to ensure that competition rules are enforced and that countries that still unfairly subsidise their industries with taxpayers' money are censured so that competition in Europe is fair? On these Benches we believe that competition policy responsibilities should be entrusted to a new independent competition authority at European level.

On the issue of tariffs, we support the elimination of European Union tariffs and the extension of the free trade zone across the Atlantic as a first step towards global tariff-free trade by 2020. Yet is the Minister aware that a recent Institute of International Economics report concluded that Europe's economy is currently almost as protectionist as it was 10 years ago?

Customs duties still account for a huge 14 per cent of European Union revenue. There is a 9.2 per cent tariff on pianos, 8.9 per cent on chocolate and 8 per cent on ski boots. Those are just a few examples. The European Union's attitude to trade liberalisation in agriculture in particular has been obstructive. Substantial non-tariff barriers exist also in relation to pharmaceuticals through to broadcasting. Does the Minister agree that France's curtailment last year of the agenda of my noble friend Lord Brittan for a transatlantic market-place, which would have meant zero tariffs on industrial goods by 2010 and a free trade area also in services, has sent the free-trade agenda into reverse? What action do the Government propose to take to arrest such protectionist tendencies?

I turn now to regulation, which has already been referred to by noble Lords. From these Benches, we do not believe that the old agenda of regulation and integration is appropriate for the economy of the 21st century in which new knowledge-based industries are breaking the old regulatory mould by the very nature of their mobility.

European Union regulation is not a new development. The single market itself led to a flurry of legislation, some of which was necessary to make the concept a reality. But in recent years we have seen the advent of a whole new class of regulations. The social and employment laws are designed not to implement the single market but to create a single cost base. The

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result is higher costs. We know of the £2 billion cost to British business of the Working Time Directive. We know of the bureaucracy spawned by the Works Council Directive. We worry about the employment costs of extending working time rules to taxi drivers for no apparent reason. We are concerned about national works councils, which would force companies with a mere 50 workers to set up a costly consultation machinery, even if they do not cross a village boundary, let alone a national one. We are aware also of the likely effect of the proposed arts resale tax.

Those regulations are major job destroyers. With British over-zealous implementation, or gold-plating, on top, far from helping to create jobs, I believe that such laws risk destroying them.

At Lisbon, the Commission proposes that the European Union should set itself the goal of restoring full employment as the key objective of economic and social policy. The goals of full employment and the elimination of poverty are worthy and ones to which we should all aspire. Yet such words must be backed by policies anchored in reality. Otherwise, they are as empty and as transient as the breath which uttered them.

The Commission paper gives little practical indication of how those goals are to be achieved, while at the same time it sets out some expensive spending commitments. Goals may be challenging but they must also be realistic if they are to be of value.

When the Portuguese presidency calls for the development of,

    "new ways of regulating the labour market",

with a,

    "strengthened role for active employment policies",

and when the Government speak of putting full employment back at the heart of Europe's social agenda through a,

    "cross-cutting joined up approach to policy making",

we must slice cleanly through that jargon to remember that governments do not create jobs; businesses do. The European Union's existing social challenges of unemployment, social exclusion and poverty will be compounded if obstacles are put in the way of those who create jobs.

The Minister will be aware that the Prime Minister has spoken of the creation of a whole new single market and of the extension of the single market to the Internet, to innovation, to telecoms and to venture capital. Indeed, he has said:

    "Europe can't legislate for technology entrepreneurs. But we can surely get out of their way".

The Government are fond of telling us that the old Europe of red tape and regulation is long gone. I shall listen carefully to the words of the noble Lord in that context. But we have now entered a new era of radical economic reform. Yet that attitude has not always been reflected in the Government's action. Despite their manifesto commitment pledging to "cut unnecessary red tape", the British Chamber of Commerce has said very recently that,

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    "excessive red tape is stifling the very enterprises the Government is seeking to promote".

Eurostat figures show that total hourly labour costs grew in the UK by 5 per cent in the year to the third quarter of 1999--more than in many other countries. Worryingly, it seems that while the Commission has accurately identified Europe's problems--for it acknowledges that weaknesses persist and that the,

    "EU's growth rates have consistently been less than the US, unemployment remains unacceptably high and too many people are excluded from society",

and, it concludes,

    "the European economy is simply not as dynamic as some of our major competitors"--

it is far from identifying solutions and it seems drawn to repeating the expensive mistakes of the past.

While we welcomed the Commission's acknowledgement that,

    "regulatory costs are far too high in placing unnecessary and costly burdens on European enterprise and that a new initiative is needed to improve the regulatory environment at all levels and further co-ordinated action to cut regulatory costs and simplify the business environment",

in the very same document there are calls for further regulation. The Commission's submission to Lisbon makes it clear that it wants to see the European Union,

    "building on the values of the European social model";

it wants to see the high level group to ensure closer co-operation with member states on modernising social protection systems established on a permanent basis; and it considers that action is required at European, national, regional and local level to make,

    "full use of the instruments available including regulation".

In that context, will the Minister say how the Government intend to ensure that Lisbon does indeed mark,

    "a definitive turning point towards the reform agenda, retaining the values of the European social model, but changing their application radically for the modern world",

when the European Commission published a strategy paper in January stating that,

    "Europe's model of intervention, working successfully on a continental scale, is a quarry from which ideas for global governance can and should be drawn"?

Does the Minister accept that that culture of regulation has resulted in one of the worst records on job creation in the developed world, helping to ensure that the United States created more jobs in one month in 1999 than France and Germany managed in the entire 1990s?

I fear that I shall give the noble Lord, Lord Wallace, a little cause for concern if I use too many American benchmarks, so I shall add but a few to the debate. While the economy in the United States has grown fast enough to create 12 million new jobs in the private sector since 1991, few such jobs were created in Europe. While unemployment in the euro-11 now stands at an indefensible 10 per cent, in the United States it is just 4 per cent. We agree that Europe must become more entrepreneurial and innovative and that jobs in the new economy will primarily be created by vibrant small and medium-sized firms.

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In a world of global competition, where it may take less effort to purchase goods on-line from half-way around the world than to buy them from the corner shop, it is deeply counterproductive to place obstacles in the way of Europe's businesses. In the 21st century, flexibility and diversity, rather than integration and regulation within a Union where every member state accepts the rights and responsibilities of the single market and the core elements of an open, free-trading and competitive Europe, are the watchwords for making Europe the best place in the world to do business, given the new, high-tech knowledge economy.

Our vision is of an open, outward-looking, low regulation, low tax, free trade, free enterprise and, above all, competitive Europe. Lisbon should be the time to realise that goal. It should mark a turning point in our approach to economic and social policy at European level. The summit is an opportunity to direct Europe towards the idea of international free trade, towards the enforcement of competition rules and towards a programme of deregulation. A decision to continue the regulatory approach at Lisbon will represent a huge opportunity lost, and I fear the consequences. I look forward to the Minister's assurance that that will not be the case.

10.40 p.m.

The Minister for Science, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, this has been a timely and helpful debate, if somewhat short. It has been helpful because it looks ahead to the issues which the Heads of State and Government will consider in Lisbon on 23rd and 24th March. As stated by the noble Lord, Lord Wallace of Saltaire, this council was a result of an initiative of the Prime Minister and the Spanish Prime Minister.

It seems to me that it is oriented to achieving the goals we want to see in terms of opening up markets and of greater flexibility. If that opens us up to an accusation of Anglo-Saxon triumphalism or of looking towards America to understand some of the processes, we shall take that criticism because we believe that, on the whole, these are good things to do.

The Government welcome the Special European Council on Employment, Economic Reform and Social Cohesion. The UK sees the special summit as offering the EU a major turning point in policy at Community level towards economic competitiveness, encouraging enterprise, and ensuring social cohesion.

This is the first European Council which has been exclusively devoted to issues of economic reform. That in itself reflects a major shift in the European agenda. We therefore welcome the enthusiasm and commitment with which the Portuguese presidency and the Commission have embraced this exercise and the helpful and forward-looking papers which they and the other member states have presented. It is striking how many of those reflect the same basic message on the importance of economic reform and of encouraging enterprise in making Europe globally competitive.

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The Government see a clear link between social inclusion and being able to find a fulfilling and rewarding job. In turn, our objective of full employment can be met only by having an efficient, competitive economy and an environment where employees and those seeking employment are given strong incentives to ensure that they have the right skills and that they keep those updated. Let no one be under any misunderstanding: we see clearly that it is businesses that create jobs, and the job of government is to create an enabling environment for that to happen. To create the right opportunities for employment for our citizens, we need companies offering innovative products and services and which are able to move quickly to meet new market conditions.

Small and medium-sized companies have many of those characteristics and have been responsible for the bulk of new jobs created in Europe over recent years. We need to ensure as governments that the EU has the right economic and regulatory environment in which small high-tech companies can flourish and provide future employment for our citizens. We need also to look at Europe in this context as a player in a global market. Globalisation makes the competitiveness of individual companies and the ingenuity and skill of their workforces even more central to the competitive survival of our economies.

The UK very much endorses the objective of the Portuguese presidency of making Europe the most dynamic, knowledge-driven economy in the world by 2010. That means benchmarking Europe's performance against the best in the world; not necessarily against the best in Europe but against the best in the whole world, and identifying where we need to do better.

We have urged our European partners--the Commission has picked up this theme strongly--to look at key areas of competitiveness and innovation as indicators of how well we are doing compared with the rest of the world. That will give us a clear and dispassionate view of where we need to focus our attention in future.

In line with the overall objective of making Europe the most dynamic economic area in the world, we are looking for some concrete outcomes from Lisbon. In response to the points made by the noble Lord, Lord Moynihan, perhaps I may say that they deal both with the question of how we respond to the technological changes brought by e-commerce and of continuing to develop the single market. I should say, however, that the council meetings are not concerned with world trade negotiations. That is a separate issue. The issue of opening up Europe to free trade is one about which we are concerned, but that is not on the agenda for Lisbon. We in the UK have been a central player in pushing down trade barriers and tariffs in the World Trade Organisation.

Perhaps I may turn to the specific objectives we wish to secure at the Lisbon Council meeting. First, the removal of remaining barriers to the development of

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e-commerce in the EU. We want Internet access in Europe to be as fast and cheap as anywhere else in the world. Recent new offers for Internet access from a number of telecoms and Internet operators in the UK have been most encouraging. This objective means adopting the existing e-commerce directive by the end of this year and the Commission rapidly bringing forward the other draft directives needed to complete the legislative framework.

Secondly, to make the EU's R&D efforts--a subject that is particularly close to my heart--work to support the EU as a dynamic, knowledge-driven economy, we need to focus R&D funds into areas which need co-operation at EU level. Those are areas where we will not be able to compete against America and Japan unless we achieve the significant economies of scale necessary in certain key areas. We need to do more to allow the results of such research to reach the market quickly. This includes creating a world-class patent system with a single European patent to allow rapid commercial exploitation.

Thirdly, we must equip our citizens with the right skills to take part in the knowledge society. We are aiming to create a culture of lifelong learning, concentrating on ICT skills and making training available to at least 60 per cent of the population by 2005.

Fourthly, in order to make our companies globally competitive, we need a properly functioning single market. This not only creates a real home market of over 300 million consumers which our industries can use as a springboard to reach the global market; it also means ensuring that the vital inputs into their competitiveness, such as energy, telecommunications and financial services are delivered as competitively and as cheaply as possible. Those industries are of course also important in their own right. We seek to bring forward to 2004 liberalisation of all EU energy markets and to reduce considerably the level of distorted state aid to industry overall.

Fifthly, we are espousing a charter for small business and aim to have the charter adopted by June this year. This is aimed at creating a culture of enterprise, encouraging young people to look at becoming entrepreneurs. It aims to reduce the burden of regulation on companies and to ensure that the remaining regulation is improved. The deregulation agenda is one that the UK has pressed hard in the EU. The BEST report, adopted a little over a year ago, aimed at improving the regulatory environment for small firms, along with the SLIM initiative that seeks to simplify internal market legislation, were useful steps in this. We are further pursuing those efforts.

The charter looks at access to finance and underlines the need for better and more accessible financial instruments from the European Investment Bank and commercial venture capitalists. This should also be underpinned by creating a single European capital market, providing greater liquidity and flexibility. Above all, we need to change European attitudes to risk, rewarding responsible risk takers and not penalising for ever those who are deemed to have failed.

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These reforms have the overall aim of creating a dynamic economy leading to full employment. This will also require modern approaches to the social agenda, providing for flexible and dynamic labour markets with social protection and social dialogue reflecting the new economy and ensuring social inclusion. In terms of the two categories mentioned by the noble Lord, Lord Wallace, it seems to me that the Council's agenda has the best features of both of those. It covers discussion of key issues and taking forward the political and economic debate. But it also has important and specific proposals--as I hope I have made clear and which we would all agree are desirable. Throughout this, a clear distinction has been made between those issues which concern the Commission and are specific and limited and those which concern nation states and are for the members to deal with themselves and are questions of exhortation rather than specific measures.

Let me point to two specific matters. The noble Lord, Lord Wallace, raised the question of European research. Specific proposals are being put forward in relation to how we co-ordinate R&D throughout the Union, but specifically aiming it at the key areas where we need to achieve critical mass in terms of research rather than with regard to that which has been the case in the past; that is, spreading research money in the framework programmes thinly over a wide range of areas and in some senses duplicating what has been done before.

Specific programmes increasing the mobility of researchers or broad-band networks for research institutes throughout Europe are sensible and practical, and we should seek to achieve them on a European basis. We cannot be accused of triumphalism. We can be proud of what we are achieving in this country. We can argue the case for policies we want to see. We should learn from America and Europe, and benchmark ourselves against the best in the world; that is what benchmarking is all about.

We should all welcome the renewal of the European social model. It means opening the social dialogue to include a wider range of players, particularly high-tech businesses, SMEs and the unemployed. It is about increasing flexibility and adapting the model to the new world we are in.

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The noble Lord, Lord Wallace, warned us against Anglo-Saxon triumphalism and suggested that the agenda is backward-looking. We can have only one of those as a criticism. If we have both, it makes a slight hash of the matter.

I agree with the noble Lord, Lord Tomlinson, that the ECOFIN paper contains a lot of sensible and practical policies; promotion of the integration of the Community's financial markets; wider access to capital, especially for SMEs; promoting risk capital; and the reorientation of public spending to increase the relative importance of capital accumulation and to support R&D innovation and ICT. They must all be aspects we should welcome.

Before I conclude, I should like to make one point about professional investment, a topic raised by the noble Lord, Lord Wallace. The strength of business investment last year exceeded Budget forecasts and it continues at record highs, both in absolute terms and as a percentage of GDP. The UK's investment as a percentage of GDP is lower than the OECD average, although it is catching up fast under the current Government. The UK Government hope that Lisbon will establish the clear priority we need to give investment for our economies to thrive in the future.

The presidency will, as usual, produce conclusions from the European Council which we hope will reflect many of the points I have just listed. We have been encouraged by contacts with the presidency and the content of both their and the Commission's inputs. Many other member states adopted similar priorities.

This summit is ultimately about making Europe the best place in the world to do business. We have therefore been working with the business community to ensure that we reflect its priorities for Lisbon. We hope that its voice will be heard by other leaders in Lisbon. UNICE, the European business federation, is organising a meeting just before the summit to make an input into discussion there.

I am grateful for a helpful and perceptive debate on these issues and hope that the Lisbon meeting will deliver the changes in attitude and in the way in which we approach economic policy and employment which are needed to make Europe globally competitive.

        House adjourned at six minutes before eleven o'clock.

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