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Baroness Knight of Collingtree: My Lords, I am most grateful. If I have interrupted a sentence, I am more than happy to wait until it has been completed.

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Lord Brittan of Spennithorne: Go on.

Baroness Knight of Collingtree: My Lords, it may be relevant at this point that on two occasions, when we were taking evidence from witnesses on these matters, I raised the question of the euro and Britain's membership of it and was told that that was not relevant to the matters that we were discussing. The witnesses were unable to answer.

Lord Brittan of Spennithorne: My Lords, that is why it is so beneficial that this debate is not just about the report but also about the flexibility of labour markets more generally. I welcome the fact that if the committee was constrained, the House is liberated.

I was going to say that the third phase of the evolution of the euro is economic restructuring and in particular moves to labour market flexibility. That came about because the creation of the euro has removed the soft options that governments of all political complexions are tempted to follow when they get into difficulties. I refer to soft options such as devaluation, which governments cannot pursue because there is a currency for the whole of Europe, not for any one country. Another soft option is that of artificially low interest rates and exactly the same reason applies—there is one interest rate for the whole of Europe. The result is that countries are gradually but increasingly being forced to face up to fundamental structural problems such as the inflexibility of labour markets. Such problems are painful to deal with but it is essential to do so if European competitiveness is to increase.

The stability and growth pact plays a positive role in this regard. I add in parenthesis that I fully support the modifications of that pact that were proposed by the UK Government and the Commission to take account of the full economic cycle and to distinguish between capital and current expenditure. The main thrust of the pact is wholly positive. In this country, governments of both major parties learned very painfully that you cannot spend your way out of recession. The noble Lord, Lord Callaghan of Cardiff, was the first major British leader who said so and the noble Baroness, Lady Thatcher, reinforced that approach, in word and deed, in spades. Commissioner Pedro Solbes, who was the economics Minister in the Spanish socialist government, did so recently in the call for Germany to put its finances in order. He said:


    "Sound public finances are a condition for durable growth and rising employment".

By insisting on that—by removing the alibis that otherwise might be resorted to and the drugs of inflationary finance and devaluation—the single currency and the stability pact are proving to be the greatest possible spur to structural reform, including increased flexibility of labour markets. A vivid example of that is being played out in Germany today. Far from the euro being the cause of Germany's problems, it may be the single greatest spur to its solution.

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As has been pointed out in recent articles in the Wall Street Journal and the Financial Times by two prominent Liberal Democrat MEPs, Nick Clegg and Chris Huhne, real interest rates in Germany are at the lowest level since 1980 and are substantially below the level that obtained in several periods when there was more spare capacity in the German economy than there is now. It is probable therefore that if the Bundesbank was still in charge, interest rates in Germany would have been higher, not lower, than they are today. There is no justification for making the euro the scapegoat for Germany's problems. The real problem is that instead of using a period of strong growth to put public finances in order and to introduce labour market flexibility and other changes, Germany introduced cumulative tax cuts and public spending increases, which amounted in total to 1.9 per cent of GDP. That failure to deal with structural issues, such as the lack of labour market flexibility, is the real cause of Germany's problems.

It is significant that when telling Germany that it must curb its excessive budget deficit, as the Commission has just done, what else did it say? It told Germany to introduce,


    "far reaching structural reforms to raise Germany's low growth potential".

That, in the Commission's view, should include liberalisation of Germany's sclerotic labour market, reform of the overburdened social security and benefits system and a radical reduction in the layers of red tape imposed on German businesses by federal and regional governments. That is what the European Commission is demanding. I believe that this is a seminal moment in the evolution of the euro.

I hope that the pressure of the stability pact and what has been said by the Commission will have a major impact on the debate in Germany. I hope that what has been done will make it clearer to those who rightly deplore the rigidity of labour markets in continental Europe that it is the impact of the euro and the rules associated with it that are by far the most powerful force for genuine structural reform, where such reform is so sorely needed.

4.7 p.m.

Baroness Greengross: My Lords, I start by saying that it is a great privilege to have served on the sub-committee that addressed these issues. I congratulate our excellent chairman, the noble Baroness, Lady Harris, on guiding us with such sensitivity and clarity in our work.

I want to highlight a few points that struck me as being of extreme importance; many of them have already been mentioned in this debate. The first point, which has been mentioned, is that of the lack of information held by government authorities across government departments about what is possible and feasible in terms of flexibility of labour markets across the European Union. I refer also to the lack of information for individuals who wish to broaden their experience and travel, as they have a right to do, across different countries of the Union in the course of their working life.

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It is awfully difficult if one's qualifications are not recognised. We seem to do much better in that regard with academic qualifications than with manual or professional vocational qualifications. Some of those difficulties are quite simple. We mean different things if we compare an engineer in Germany with one in Britain: a host of different meanings and various levels of qualifications are involved. We need to get that right. The issue is more important than it sounds. We need to get equivalence at many levels in relation to qualifications. That is particularly important in the caring, health and social care fields, such as child care, nursing and teaching. However, I believe that it is also important across the board.

Another issue that was highlighted for me was the importance of true portability of benefits, including pensions, across the Union. Much more work needs to be done along these lines, and it is important that the Government facilitate that work so that it can move along. We also need to remember the self-employed. Although we concentrated a great deal on what employers can and need to do in order to help their employees to be flexible and move across the Union, far less help seemed to be generated towards the self-employed.

I was very aware that we kept comparing what goes on in this country and Europe generally in terms of mobility—I am talking here mostly of geographical mobility—with what goes on in the United States. I accept that there is a big difference when everyone shares the culture. And, although there are huge differences between people in the United States because of their origins, it is one country and it has a common language. Mobility presents an enormous barrier and it will continue to do so, however well we achieve in language skills and so on.

However, we also have to accept that the level of geographical mobility in Europe, and, in particular, in this country, is too low for greater efficiency. That mobility needs to be increased and to become easier. In order for that to happen, we need to improve our language skills and our knowledge generally of the cultures of other countries in the Union.

The irony of the Government's announcement about the importance of language skills in secondary schools and about when they should begin is not lost on many members of the committee. I hope that, in some ways, the Government will address that issue because those conflicting announcements seem to be made at the wrong time. One topical way to make it easier for people to travel and to increase their mobility would be to use the international baccalaureate a little more than is currently the case in this country. That would ease the difficulties experienced by people.

As mentioned by the noble Baroness, Lady Gibson, in particular, we considered the role of lifelong learning and its current importance when the demographic picture across the Union is one of an ageing situation. We can take that situation as being of great benefit to all of us or a threat. If we are to treat it positively, we must make it easy for people to return

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to the labour market and not so easy for them to leave it. Wherever they work in the Union, their skills and experience must be recognised. We must make it easier for them to travel and to gain the opportunity to continue working. Indeed, we must also encourage people to be retrained for new occupations in later life.

We also have to take seriously the difficulties that dual-career families face when they want to move. We should address what employers can do to help employees who are part of dual-career families and consider the opportunities available. The difficulties faced are partly due to a lack of information but it is also partly a case of making the opportunities for such families more trans-national across the Union. Those opportunities include schooling but they go wider than that. We must also address the question of how people with careers can travel so that they at least have the opportunity to live with their partner, husband or wife.

As mentioned by other speakers, the need for occupational as well as geographical mobility has highlighted the appalling level of basic skills in this country. If there is one priority, it is to get that right in terms of labour efficiency and flexibility here as well as across the Union.

4.14 p.m.

Baroness Whitaker: My Lords, I shall make some brief points on geographical mobility—brief partly because so many other points have already been so ably made and partly because my voice may not hold out.

All of us on the committee which produced this report appreciated the skill with which our chairman, the noble Baroness, Lady Harris, guided us through some very surprisingly uncharted territory. Surprisingly uncharted because when one considers the founding of the European Community from its earliest days, free movement of labour was one of the cardinal principles of the single market and one of the first to be implemented. Yet when we took evidence for our inquiry all these decades afterwards, we could find virtually nothing to tell us how mobility of labour within the European Union works for the people who move, and not much to confirm its economic advantages, though common sense indicates there are many.

So the need for more research, as the noble Baroness said, is one of our key conclusions. It is of particular importance because when someone moves countries to take new employment, more than a job is at stake. A family will often move too. The culture and values of one community will be substituted for another. A community network will be left behind. Children's schools, and in our case the public examination system will be new; as has been said, healthcare, social security and tax will be different; even the weather might take some getting used to.

Fortunately, the basis of the European Convention on Human Rights can make a sort of bedrock of common values; but above that there are many pressure points, positive and negative, which it would be very helpful to know more about. What are the

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reasons people do not move to work, when it would help their own economy as well as the wider one to do so?

When I was in the Employment Department, as it then was, the UK was famous for not having much of an internal mobile labour market. People would not get on their bikes. They would face unemployment or less attractive employment in order to remain close to their community and their extended family. It was the despair of the planners. But were these people so wrong? Is not the reliability, flexibility and cheapness of childcare provided by the extended family an advantage? Is not the company of friends worth balancing against a bigger income? Some disadvantages of moving can be compensated for: childcare arrangements, facilities for dependent relatives, ease of transport to visit back home and so on. But if we do not know what the key factors are, we cannot give relevant information about them and we cannot plan to accommodate them.

Information about the new workplace was another surprising gap. As has been said, we did not find systematic provision of information, nor a harmonised system of mutual recognition of qualifications, particularly at ancillary and skilled levels as opposed to professional and academic levels. We welcome, as does the CBI, the European Commission's intention to close this gap, and hope your Lordships' House will have an opportunity to look at the proposals. May I ask my noble friend more precisely what the state of play is on this draft directive?

When we looked at the part schools play in mobility decisions we saw two striking opportunities. One was in our schools, to provide the sort of information which meant that life in another member state was not such an unknown quantity, particularly again, not for those intending to work in professional and academic spheres, who already have more access to such information, but for precisely the people who could take advantage of particular skill or labour shortages. As Professor Christoph Schmidt of Heidelberg University told us:


    "the attitude towards Europe as a whole or the European Union is shaped very much early on in school age . . . would be scope for improving knowledge and acceptance in European countries for the idea of being a member of a larger common Europe".

The other striking opportunity was the possibility of mutual recognition of public education examinations. The barrier to mobility most consistently cited was anxiety about the education of the children of the potential mobile worker. Children were at particular stages which should not be disturbed, they would have to face teaching in an unfamiliar language, they would not manage in a different public examination system, they would lose out when they returned home—all real and significant problems.

When we took evidence for this report, the Government had not completed their "Languages for All" strategy and so our recommendations have been overtaken by events—or perhaps, they even influenced events. However it came about, the Government's undertaking to give more stimulus to early learning of a foreign language, including our neighbour European

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ones, is in keeping with the European High Level Skills and Mobility Task Force's recommendation that foreign language teaching should begin at eight and our recommendation, supported, as my noble friend Lady Gibson said, by the TUC evidence, that it should continue to 16. I echo the call to my noble friend the Minister to update us on progress in achievement of the strategy.

But finally, my Lords, there is a ready-made tool for making the lives of schoolchildren who move within Europe easier and more educationally rewarding—the adoption of the international baccalaureate, which is available in very few UK schools at the moment, but is consonant with all the continental public examination systems and acceptable as an entry to many universities in this country. My noble friend Lord Williams of Elvel asked, in his very timely debate a year ago why this could not be done—in his words,


    "an 'international baccalaureate' . . . would enable school leavers to go to university or into the job market with an educational qualification—including that of foreign languages which would allow them to choose where in the European Union they want to work and live".—[Official Report, 16/1/02; col. 1117.]

He did not, I am sorry to say, receive an answer from the Government. Perhaps we could have one now. I commend this report to your Lordships.

4.22 p.m.

Lord Higgins: My Lords, this is an interesting report, although in some ways the debate is more interesting, despite the lack of an official contribution from the Liberal Benches. My noble friend Lord Brittan of Spennithorne said that the committee was confined but that the House is liberated. I confess that I do not understand why the committee felt confined. This is an issue that needs to be put in the widest possible context, as some of the contributors have sought to do .

There is certainly no lack of documentation on this issue. In February 2001 the Commission adopted a new strategy for a new European labour market by 2005. In March 2001 there was the communication on which the noble Baroness's committee has commented. In June 2001 there was the establishment of a high-level task force and so on, and in February last year there was the publication of this report. I join those expressing some regret and surprise that the report has not been debated earlier. Inevitably, if one delays for a year, there is a possibility that matters may be overtaken by events.

That appears to be so because in July 2002, after the publication of the committee's report, the Government, through the Treasury, the DTI and the Department for Work and Pensions, published a good document entitled Towards Full Employment in the European Union. So far as I can see, that does not refer at all to the report of the committee, which is rather extraordinary. One would have expected that it would.

As has been pointed out, the report deals, on the one hand, with skills mobility and, on the other, with geographic mobility. In a sense the mobility in relation to skills is vertical and in relation to the location of jobs it is horizontal. As my noble friend Lord Brittan

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pointed out, there is a clear link between the two and the extent to which there is geographical mobility may well depend on the extent to which a particular country's workforce has a degree of vertical or skill mobility.

There is much in the report with which one can agree, although to some extent parts of it express a view that is fairly apparent. Noble Lords have stressed the matter of education, as did the noble Baroness, Lady Whitaker, particularly with regard to language. The committee rightly said that it found the situation in that regard appalling.

We are not simply talking about language in terms of tourists. The kind of training concerned here relates to the language skill that would enable someone from one country to work in another. A vastly greater level of language ability is required for that than if one simply wants to spend a weekend in Calais. I speak from experience, having spent much of my time in Holland. In regard to language I do not believe that many Dutchmen would have great trouble acquiring a job in this country, but I believe that a number of people in this country would have considerable trouble acquiring a job in Holland. I give way to my noble friend.


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