The House of Commons decided, yesterday, pursuant to Article 6 of Protocol (No 2) on the Application of the Principles of Subsidiarity and Proportionality, to send to the Presidents of the Council, the European Parliament and the Commission a Reasoned Opinion stating that the Draft Directive on public procurement and Draft Directive on procurement by entities operating in the water, energy, transport and postal services sectors do not comply with the principle of subsidiarity. During the debate Bill Cash made the following speech and interventions:

The Parliamentary Secretary, Cabinet Office (Mr Mark Harper): I beg to move,

That this House considers that European Union Documents No. 18966/11 and Addenda 1 and 2, relating to the Draft Directive of the European Parliament and of the Council on public procurement, and No. 18964/11 and Addenda 1 and 2, relating to a Draft Directive of the European Parliament and the Council on procurement by entities operating in the water, energy, transport and postal services sectors, do not comply with the principle of subsidiarity for the reasons set out in Chapters 2 and 3 of the Fifty-seventh Report of the European Scrutiny Committee (HC 428-lii); and, in accordance with Article 6 of Protocol (No. 2) of the Treaty on the Functioning of the European Union on the application of principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.

This debate gives the House a welcome opportunity to consider the subsidiarity questions—pronouncing that word will be one of today’s challenges—identified in the draft directive on public and utilities procurement. It may assist the House if I give some general context on subsidiarity, after which I shall turn to the draft directives under consideration, focusing in particular on the subsidiarity concerns.

This is the fifth time the House has considered a motion for a reasoned opinion on subsidiarity. The first three related to financial services, and one related to justice. The Under-Secretary of State for Justice, my hon. Friend the Member for Reigate (Mr Blunt), read into the record on 7 December—at column 313—a very good definition of subsidiarity. That is not only my opinion; the hon. Member for Stoke-on-Trent South (Robert Flello), speaking for the Opposition, said precisely the same thing, so there is clearly general approbation on both sides of the House for that definition. I do not propose to trouble the House by reading out the definition again—[Interruption.] There is approbation for that from those on the Government Benches behind me. However, colleagues can, of course, read it for themselves, if they so wish.

The Government support the Lisbon treaty provisions to uphold the principle of subsidiarity and want to work with Parliament to highlight any subsidiarity concerns that the Government may share. Our explanatory memorandums on the proposals in question drew attention to those concerns, and I am very pleased that the European Scrutiny Committee—chaired by my hon. Friend the Member for Stone (Mr Cash), who is present—decided to pursue the matter with suitable dispatch. I also note that the National Assembly for Wales has written to the European Scrutiny Committee expressing concerns about subsidiarity in respect of the procurement proposals.

We have looked into whether other member states share these concerns, and I know of at least one case: the Swedish Parliament has raised similar concerns and tabled reasoned amendments on both proposals in very similar terms to those of our motion.


Mr William Cash (Stone) (Con): A big issue that has cropped up in the past year is that of Bombardier. The question that the hon. Member for St Helens North (Mr Watts) just asked is apposite because this is not simply a question of whether there are fair rules on procurement in terms of competition. Because a legal framework has been created, there is a special and fundamental requirement to comply with those rules because they are part of the legal process. The problem is not merely whether proper competition is being avoided but whether the law is being breached as well.

Mr Harper: I thank my hon. Friend for making that point. On the specific issue of procuring rolling stock, he will know that when this came up in the House last year the then Transport Secretary made it clear that the bids were being evaluated by criteria laid down by the previous Government. The problem was that we had to follow the criteria that were already laid down. The then Secretary of State also said that we would look at procurement in the growth review that was under way, and that we would look at what happens in other EU countries that are constrained by the same rules and at best procurement practices to make sure that, where appropriate, we include appropriate socio-economic criteria in the procurement decisions. That has to be done right at the beginning; we cannot set out the criteria and then change the rules part way through the process to favour domestic bidders. I have looked in detail at the particular case my hon. Friend mentions and it was made clear that the decisions that people are not happy with were taken under the previous Government and that we had to implement them. The alternative would have been to suspend the procurement process completely and go right back to the drawing board.


Mr Cash: After 28 years in this place one gets a sense for when a Minister wants to get to the end of his speech as quickly as possible, particularly when he is being assailed on all sides. May I just ask whether a full analysis has been made by the Government through the appropriate Department—not his Department, but the Department for Business, Innovation and Skills—of whether there has been a real investigation into the way that public procurement operates in this country as compared with the rest of Europe?

Mr Harper: The short and honest answer is that I do not know. I will find out and make sure that I or my right hon. Friend the Minister for the Cabinet Office writes to my hon. Friend to let him know.

I was not close to sitting down because I was about to set out the three areas in which the Government have subsidiarity concerns about the proposed oversight body—concerns that are shared by the European Scrutiny Committee. First, the oversight body was not proposed in the Commission’s consultation green paper or otherwise consulted on, so neither member states nor anyone else had an opportunity to comment on the proposal. The Commission’s impact assessment does not provide a clear or detailed justification. The European Scrutiny Committee expressed similar concerns about the inadequacy of the Commission’s impact assessment when we debated the common European sales law.

Secondly, the proposal for a single, national oversight body in each member state does not recognise or respect the different legal systems within the UK. As Members are well aware, Scotland has a separate and distinct legal system. Under the devolution arrangements, the development and application of public procurement policy and the implementation of public procurement legislation are devolved matters in both Scotland and Northern Ireland. As I have mentioned, Scotland has chosen to implement the procurement directives separately. The requirement for a single national oversight body for a member state is inconsistent with those settlements, and the Commission has not demonstrated any objective necessity for a single body in each member state.

The third substantial concern is the proposal that the oversight body should be empowered to seize the jurisdiction currently resting with the courts to determine some disputes about compliance with the procurement rules. That would be a judicial function, whereas the other functions of the body would be administrative or regulatory. If they were all combined in one body, that would intrude unjustifiably in national legal and judicial structures. That would be inconsistent with the UK’s legal traditions in which a clear distinction is made between judicial and administrative functions. The remedies rules that I mentioned earlier leave it to member states to determine the legal structures that enforce the rules. There seems to be no clear justification for departing from those now. This might affect other member states as well.

As I have said, a number of other member state Governments will have issues with the national oversight body, whether on grounds of bureaucracy, cost, incompatibility with existing arrangements or subsidiarity. The Parliament of one country has already set out similar concerns to ours in a reasoned opinion. The debate has been very helpful and the European Scrutiny Committee’s motion is very welcome. I look forward to listening to other Members and having the opportunity to support the motion and have this House take a sensible decision today.


Jacob Rees-Mogg (North East Somerset) (Con): My hon. Friend the Member for Stone (Mr Cash), the Chairman of the European Scrutiny Committee, asked me to make a speech on behalf of the Committee and on his behalf because he thought that he would not be here, but such is the attraction of a European debate that he is in his place anyway. None the less, the Committee is grateful to Her Majesty’s Government for facilitating the debate so quickly. The time scale under the Lisbon treaty for national Parliaments to submit a reasoned opinion on a subsidiarity issue is extremely tight. In this instance, the European Scrutiny Committee received the views of the National Assembly for Wales only a couple of days before the Committee’s meeting last Wednesday, when it recommended that the House adopt the draft reasoned opinion.

The Government have welcomed the proposals, and many of the detailed measures in them, and have provided an impact assessment that suggests that the benefits would significantly outweigh the costs. However, as we have heard from the Minister, they have one major concern—namely, that the proposals would require member states to establish a national oversight body, which would not only have a range of administrative and regulatory powers, but would be able to “seize” jurisdiction of the courts and pre-empt their functions in a way that the Government consider might infringe the principle of subsidiarity.

As I mentioned, this concern was echoed in the letter from the Chairman of the Constitutional and Legislative Affairs Committee of the National Assembly for Wales. I understand that the Scottish Parliament takes a similar view. Let me say from the outset that this concern is shared by the European Scrutiny Committee for reasons that I will come on to in a moment. So the debate today is not about the generality of the draft directive, in spite of some of the comments that we heard earlier. Rather, it is about a subsidiarity issue that the Government, two of the devolved Assemblies and the European Scrutiny Committee have identified.

Before I turn to the subsidiarity issue, I should explain that a reasoned opinion is a new procedure under the treaty of Lisbon, available to national Parliaments if they wish to challenge Commission proposals for legislation on subsidiarity grounds. National Parliaments have eight weeks from publication of a proposal to submit a reasoned opinion. The deadline in this case is midnight Brussels time, which would be 11 pm Greenwich mean time, on 8 March 2012.

If such opinions represent one third of all votes of national Parliaments—the bicameral UK Parliament has two votes—the Commission has to reconsider its proposal. We understand that, as the Minister mentioned, one other national Parliament, Sweden’s Riksdag, is also submitting a reasoned opinion on similar grounds. Even if the threshold is not met—in reality, the numbers required mean that it is highly unlikely that it will ever be met—the Commission responds to each reasoned opinion it receives. In addition, national Parliaments can, acting through the Government, now challenge EU legislation on the grounds that it infringes the principle of subsidiarity.

The principle of subsidiarity is born of the wish to ensure—if you believe this, you would believe anything—that decisions are taken as closely as possible to the nationals of individual EU member states. It is touted as a buffer against unnecessary supranational—not supernatural—legislation but it has been largely unsuccessful. If only the legislation were supernatural, we might find that our experience of the European Union was a happier one. None the less, its definition is important. It is set out in article 5(2) of the treaty on the functioning of the European Union, which states:

“Under the principle of subsidiarity, in areas which do not fall within its exclusive competence, the Union shall act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, either at central level or at regional and local level, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level.”

In addition, the treaty requires the EU institutions to ensure “constant respect” for the principle of subsidiarity as laid down in protocol No. 2 on the application of the principles of subsidiarity and proportionality. Accordingly, article 2 of the same protocol obliges the Commission to consult widely before proposing legislative Acts. This is one of the parts that has not taken place. Such consultations are to take into account regional and local dimensions, where necessary. If the Commission fails to do so, a reason must be given in its proposal.

George Eustice (Camborne and Redruth) (Con): Does my hon. Friend agree that the principle of subsidiarity would work far better if rather than just being able to prompt a response from the Commission, groups and national Parliaments were able to strike down policies of the Commission?

Jacob Rees-Mogg: If I may divert from the set text from the European Scrutiny Committee, it is always worth remembering that subsidiarity started as a theological term in the Roman Catholic Church, of which I am a member. That is one of the most centralised bodies of any organisation anywhere in the world, with power vested in the Holy Father, so I have always been rather suspicious as to what the purpose of subsidiarity is.

Mr William Cash (Stone) (Con): As a fellow Catholic, may I ask my hon. Friend whether he agrees that it is one thing to have the Jesuitical concept of subsidiarity, which has been brought into the rule-making of the European Union, as a theological question, and that it would be far better if the matter were regarded purely as one of theology and not exclusively one for political purposes?

Jacob Rees-Mogg: I am grateful to my hon. Friend for his helpful intervention. I do not think one should use the term “Jesuitical” too pejoratively, as the Jesuits are a fine body who, I believe, educated my hon. Friend—

Mr Cash: With great success.—

Jacob Rees-Mogg: With enormous success, which is acknowledged around the country and for which we are all grateful. However, I agree with the fundamental point that it is a political rather than a theological reality in this case.

By virtue of article 5 of protocol No. 2, any draft legislative Act should contain a “detailed statement” making it possible to appraise its compliance with the principles of subsidiarity and proportionality.

I turn now to the Committee’s view, as expressed in the draft reasoned opinion. The first conclusion we came to was that the Commission had failed to consult member states in the Green Paper, or otherwise, on the possibility of setting up a single national oversight body. This is in clear breach of article 2 of protocol No. 2, and I ask the Minister to say if he agrees with this, and whether he intends to pursue it with the Commission.

Similarly, there is no evidence in the Commission’s explanatory memorandum or impact assessment of it carrying out the requirement under article 5 of protocol No. 2 to prepare a “detailed statement” containing “some assessment . . . in the case of a directive of its implications for the rules to be put in place by Member States, including where necessary the regional legislation”.

As a consequence, the draft directive on public procurement and, by implication, the draft directive on procurement by public entities is said by the National Assembly for Wales to breach the devolution principle in both Wales and Scotland. I quote from the letter of 23 February from the National Assembly for Wales:

“The proposal also fails to have regard to the principle of devolution in imposing the duties on a single body.”


Mr William Cash (Stone) (Con): I see that the Minister is anxious to get to his feet and am sorry to have to disappoint him, but it will not be for long. As my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) dealt so well with the European Scrutiny Committee’s representations, I want to look at some of the context within which this all takes place and, in particular, draw attention to the explanatory memorandum provided by the Government. It states:

“Public procurement plays an important role in the overall economic performance of the European Union. In Europe, public purchasers spend around 18% of GDP on supplies, works and services. Given the volume of purchases, public procurement can be used as a powerful lever for achieving a Single Market fostering smart, sustainable and inclusive growth.”

There is one point to which I am bound to draw attention, and that is the figure of 18%, which is a monumental percentage of the European Union’s GDP. We therefore want to be absolutely certain that it is not subject to abuse.

There is a good degree of cross-party support on this question, and when intervening during the debate I have already mentioned that there are important reasons for ensuring that we are not cheated through any fancy practices by other member states. I voted for the Single European Act 1986 and wrote a letter to The Times about it, drawing attention to the difficulties that might arise if any mistakes were made in the Act’s operation. At the same time I tabled an amendment stating that nothing in the Act would derogate from the sovereignty of the United Kingdom Parliament.

As it happens, the then Speaker, Bernard—Jack—Weatherill, and I had a discussion, because I disagreed with the House officials on the selectability of my amendment. I was told in those days—I repeat, in those days—that the question of derogation from the sovereignty of the United Kingdom Parliament was regarded as reopening the whole issue of the European Communities Act 1972. In fact, it did no such thing, and I am glad to say that since then such amendments, including those on the sovereignty of the United Kingdom Parliament, have been accepted on several occasions. That raises the question of the extent to which a single market, and the legal framework carried with it, is compliant with the general principles of competition, because we live in a global environment. We live in a world where there is a great deal of international competition, so constraining economic performance and public procurement within the single market raises one or two issues.

On the question of the manner in which the report has been put together, the explanatory memorandum states that

“the European Commission conducted in 2010/2011”— only a short time ago—

“a comprehensive evaluation of the impact and effectiveness of EU procurement legislation drawing on an extensive body of evidence and new independent research.”

I raised that question from the UK point of view with the Minister, because it is one thing for 18% of the EU’s entire GDP to be looked at by the European Commission, in which some of us have not very much confidence, but it is another thing to ask whether the UK Government have looked at the implications for the UK, particularly in the light of recent examples, such as Bombardier.

The Minister replied, “Well, that was done under the previous Government,” but, although that is no doubt true, the question of whether it is a matter for political point-scoring does not necessarily lead us to the right conclusion. I am interested to know now what impact public procurement has on the UK vis-à-vis other member states of the European Union. That is why I asked the Minister if he would be good enough to take it up with the Business Department, and he has graciously agreed to do so.

It is clear that Germany has a monumental advantage, some of it created by its own success, when it comes to foreign direct investment in other member states—particularly in those with economic and political ties to Germany, as geographically, politically and economically such links give Berlin substantial leverage over those countries. That process is in part leading to a distortion of the EU’s overall objectives, hence the increasing concern that Germany is becoming not merely the predominant member of the European Union but the dominating element. I say that in no hostile sense—just that I think it is bad for Germany, for Europe and for the UK.

Kelvin Hopkins: It has been said that the European Union is one way of avoiding conflict between the nations of Europe, but, with the pressures inside the eurozone at the moment, tensions are being exacerbated by the European Union, not lessened.

Mr Cash: I do not need to go any further down that route, other than to say that public procurement amounting to 18% of the EU’s GDP represents a significant advantage to countries with the maximum degree of foreign direct investment, if they are able to induce the Governments and official bodies of those countries to procure for them the return that they no doubt feel is justified, given the contribution that countries such as Germany make to the European Union as a whole. All that requires a great deal of careful analysis.

I do not want to be unduly suspicious, but I fear that there is a considerable amount of hand-wringing over the extent to which Germany is expected to contribute to the European Union in relation, for example, to Greece and to Spain, when in fact, as Wolfgang Münchau said in the Financial Times a couple of days ago, the root problem is the imbalance that Germany is creating by its refusal to import. I cannot be sure about this, but BIS should ask itself the serious question whether there is not a similar problem in relation to public procurement.

If Germany, for example, makes massive contributions to other countries in Europe, no doubt it believes that if it in turn obtains contracts for the roads, railways and all the other things that make up the public procurement system, it will therefore, through the contracts that it has secured there, receive a repayment—with fantastic profits attached, no doubt—that returns the money to Berlin. That is no doubt what it wishes to achieve—and is achieving.

Mr Watts: The hon. Gentleman hits on a real problem. As far as I can see, the German authorities, whether they be the Government, civil servants or politicians, all tend to see manufacturing as the core of what they do. They make every effort to maximise the potential work that they can generate for their own manufacturing industries. That is not the case in the UK, and we are in an unfair position because of it, so do we, as well as the Germans, need to change?

Mr Cash: I am glad that the hon. Gentleman raises that issue, because it is very much the direction in which we should go. We need an analysis and we need to know whether the UK is stepping up to the plate. We know that we have incredibly good industries, but are we making the most of them? Are we being cheated? Are we—if it falls short of cheating—being taken for a ride? Are the rules being properly complied with, and should BIS not conduct a strategic analysis of the issue, irrespective of the fact that the Business Secretary, being a Liberal Democrat, has an apparent abhorrence of investigating what I should like him to look at in terms of the inadequacies and manipulations of the European Union?

I am not being hostile or over-suspicious, but when 18% of GDP is tied up in such public procurement, it is very important for us to be completely sure that we are having a calm and collected look at the extent to which it operates for or against us. The evidence on Bombardier suggested that things had gone badly wrong. I do not really care which side of the House is at fault; as far as I am concerned, this is an opportunity to get it right. I am glad to see that those on both Front Benches are nodding in agreement, because I know that their main concern is to serve the national interest, and that would be well achieved by making such an analysis.

The document contains, as part of the study that the European Union conducted, issues relating to small and medium-sized enterprises. Bigger manufacturing industries tend to be able to look after themselves, but some SMEs need to be carefully monitored and given every possible advantage to enable them to get into the procurement market. The document also refers to the “strategic use” of procurement in Europe—strategic, I imagine, in the context of global trade.

There are deep concerns about the extent to which our water, electricity and many other main utilities are exposed to degrees of competition that are apparently not complied with in some other countries. I hope that that, too, will form part of the overall strategic analysis.

Kelvin Hopkins: Some of our utilities, such as electricity and water, are owned by foreign companies—even foreign state-owned companies—and there is a suggestion that they are exploiting the British market to subsidise their own markets.

Mr Cash: Yes. This is all part of what I would like someone to look into very carefully. We are far too used to hearing generalisations and soft words when we are in fact talking about very substantial sums of money—on a monumental scale—and the question of whether this is a fair and free market that benefits us. I take into account the remarks of my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) about the manner in which free trade operates, but for practical purposes, in terms of public procurement, I would want to be satisfied that it always works on a fair and reasonable basis and does not in any way upset the UK economy.

This is a very important debate, albeit not one that has attracted a vast amount of interest. I am afraid that these European debates, the contents of which are extremely important, do not necessarily attract the degree of attention that they deserve, because although they deal with people’s daily lives, with whether the UK economy will function effectively, and with many other areas within the rubrics of the European Union’s legislative framework, they do not have the word “domestic” stamped on them, and people think that when we talk about “Europe” we do not mean the UK. The truth is that the UK is affected very directly by everything that happens in the EU, and I want to be entirely satisfied that we get the full benefit of the trading system that the single market is supposed to provide.

Kelvin Hopkins: The work that the Chair of the European Scrutiny Committee does, in which some of us try to support him, does make a difference, and this House does hear about the realities of the European Union. I think that our Front Benchers, possibly our civil servants, and certainly the public outside appreciate that we are taking these things seriously. I pay particular tribute to the hon. Gentleman in that regard.

Mr Cash: That is extremely generous of the hon. Gentleman. I feel very strongly that we have a duty to look at these matters and to do what we can to help in terms of debating them for the benefit of our constituents in the United Kingdom as a whole.

The explanatory memorandum contains a reference to the impact assessment and its executive summary, which gives us reason to believe that the impact on the European Union has been considered. However, the European Union is not an end in itself; it is an artificial framework that has been created for the purpose of an objective, which is, ultimately, political union. We know that. We also know, from what Chancellor Merkel has been saying recently, that that is very much tied up with her own agenda; I do not need to go down that route. We must consider the impact on the United Kingdom of the huge amount of money involved in public procurement, and the effect in relation to utilities, which may determine whether we get any energy and whether we have a proper water system, electricity system, and so forth. Enabling other countries’ companies to have control over those matters is a question not only of trading but of national security.

It is very important to have these things properly looked at. I am sure that the Minister and the duty Whips will pass on my messages to BIS, and that we will end up with a virtuous circle whereby we have a proper analysis to ensure that the United Kingdom gets what it deserves out of the European Union, and does not participate in it in ways that are, as our debate on subsidiarity amply demonstrated, unnecessary.

Mr Harper: With the leave of the House, let me respond briefly to some of the concerns raised during the debate. I will try to keep my remarks as focused as I can on the motion before us, tempting though it is to range more widely over the whole gamut of European policy.

I, too, pay tribute to my hon. Friend the Member for Stone (Mr Cash) for the excellent work that he does in chairing the European Scrutiny Committee. His wider concerns about growth, trade, jobs and our success as a country were exactly the focus of the recent European Council, the details of which my right hon. Friend the Prime Minister set out so ably yesterday, when my hon. Friend was in the Chamber. From our perspective, the purpose of being in the European Union is to ensure trade, jobs and success for the United Kingdom.

I welcome the comments of the hon. Member for Barnsley East (Michael Dugher) and his general support for the motion. He referred to concerns that he had picked up about officials and “weaker Ministers” at the Treasury. I can only assume that he has reached those conclusions from his close working with the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who has great experience of the Treasury and must have encountered such things in the 10 years that he was Chancellor.

My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) entertained us, as ever, on behalf of the European Scrutiny Committee, leaving an opportunity for my hon. Friend the Member for Stone to range more widely. My hon. Friend the Member for North East Somerset made an excellent speech that took us down one or two little byways. The House will be pleased that I am going to resist the temptation to engage in any kind of theological debate about subsidiarity, or even supernatural law-making. The National Assembly for Wales, to which he referred, had two main concerns: first, about the oversight body and subsidiarity in general; and secondly, about specific issues to do with devolution. The Government agree with those concerns, as I explained in my earlier remarks.

My only other point is about the wider procurement issues. It is worth noting that recent analysis showed that UK companies won 17% of all the public procurement contracts awarded to companies from other member states across Europe. I will leave it to hon. Members to draw their conclusions about whether that is good or could be better, but it is a fairly substantial chunk of GDP.

Finally, on the subject of how other European countries do their procurement, there are remedies for aggrieved suppliers, which countries have to implement. I urge any British company that feels that it has been hard done by to use those remedies to ensure that it gets a fair bite of the cherry.

Question put and agreed to.


That this House considers that European Union Documents No. 18966/11 and Addenda 1 and 2, relating to the Draft Directive of the European Parliament and of the Council on public procurement, and No. 18964/11 and Addenda 1 and 2, relating to a Draft Directive of the European Parliament and the Council on procurement by entities operating in the water, energy, transport and postal services sectors, do not comply with the principle of subsidiarity for the reasons set out in Chapters 2 and 3 of the Fifty-seventh Report of the European Scrutiny Committee (HC 428-lii); and, in accordance with Article 6 of Protocol (No. 2) of the Treaty on the Functioning of the European Union on the application of principles of subsidiarity and proportionality, instructs the Clerk of the House to forward this reasoned opinion to the Presidents of the European Institutions.