Oral evidence: Business views on the EU Referendum, HC 88
Oral evidence, 24 May 2016.
Witnesses
Paul Nowak, Deputy General Secretary, TUC, Josh Hardie, Deputy Director General, Policy and Campaigns, Confederation of British Industry, Mike Spicer, Director of Research, British Chambers of Commerce, and Lee Hopley, Chief Economist, EEF, gave evidence.
Chair
Thank you for attending the Select Committee. We are very grateful for your time. Could you tell us who you are and which organisations you represent, for the record?
Lee Hopley
I am Lee Hopley. I am Chief Economist at EEF, the manufacturers’ organisation.
Mike Spicer
I am Mike Spicer. I am Director of Research and Economics at the British Chambers of Commerce, which is the national association for accredited chambers of commerce in the UK.
Paul Nowak
I am Paul Nowak. I am the Deputy General Secretary of the TUC. We represent 52 affiliated unions. We represent just short of 6 million workers, right across the economy.
Josh Hardie
I am Josh Hardie, Deputy Director General at the CBI.
Chair
Starting with you, Lee—but it is a question to you all—could you summarise your organisation’s position regarding the referendum?
Lee Hopley
EEF surveyed its members last autumn. A majority, 61%, are in favour of remaining in the EU; 5% want to leave; 10% are indifferent; and the remainder were split between not having an opinion yet and not being prepared to take a corporate view. We see that as giving EEF something of a mandate to be positive about the UK’s relationship with the rest of the European Union and to speak to the advantages that many of our members have indicated to us that they see as coming from that relationship.
Chair
The supplementary question, which I will ask all of you, is: how did you arrive at that position? You surveyed members and found a clear majority. Is there any distinction between large, small, particular sectors of manufacturing? What is the message that is coming out of your survey?
Lee Hopley
I should add that the survey was one part of the engagement that we had with our members. We have been in regular dialogue with manufacturers since the famous Bloomberg speech from the Prime Minister back in 2013. We had a number of roundtables exploring members’ views on Europe, issues that they had, advantages that they saw of being part of the European Union; and we have not come across a significant difference between different sectors or sizes of company. Part of that speaks to the nature of EEF’s membership. We have a lot of mid‑sized and larger businesses in membership, and not too many micro‑businesses; 90% of our members are exporters and the remainder probably export indirectly through supply chains in the UK, so we do have a very export‑focused membership. However, we are not seeing a huge distinction between large, medium or small‑sized businesses.
Mike Spicer
As an organisation, we are strictly neutral. We are not campaigning for either position. This comes from two things. The first is a longstanding commitment to political neutrality, which goes beyond this referendum and extends to the referendums that we have had in the past, such as in Scotland two years ago and the AV referendum before that, as well as the neutrality that we have across general elections. That is a standard policy that we have. The other element is that we see divisions in our membership that are very real. Overall, in the last poll that we will do before the referendum vote itself, we recorded 54% of the 2,000 or so respondents to our survey across the UK as saying they would vote to remain in the EU; 37% said they would vote to leave.
Chair
That is 2,000 respondents out of a potential population field of how many members?
Mike Spicer
We have around 70,000 direct members. I should also say that we have been regularly polling our members since around 2013, roughly once per quarter. We have stepped that up a little bit in the last six months. On top of that, we have regular engagement through focus groups and, indeed, we have just come to the end of quite a long period of doing focus groups in every region and nation of the UK. There are a variety of things, but we do see divisions that hide beneath that top‑line figure. Some of them have already come out through the previous session, and we see the same thing. We definitely see a sliding scale of commitment to remain in the EU, based on business size; the lowest levels of support would be among the smallest businesses and the highest among the largest. We see splits on exposure to international markets, so the most pro‑EU of companies are those that export to the EU alone. The least pro‑EU of companies are the ones that either do not export anywhere at all or that export outside of the EU only. We also see very real differences in geography. This is a point that was brought up in the last session, but one of the things that we have seen is that the most pro‑EU of the regions—and this has a long history to it—would be London, Northern Ireland and Scotland; the least would be the West Midlands. There are very real geographical differences. You see some parallel with the public opinion polls, and we do not take a view on specifically why that is, but those patterns of exporters versus non‑exporters, and big versus small, are fairly uniform across the country.
Paul Nowak
From the TUC’s perspective, it is important to say that there is not one homogenous view that represents 5.8 million people. Of our national unions, three are backing Brexit. In terms of those unions backing remain, they represent just over two‑thirds of our affiliated membership; over 4 million members are in unions that are formally backing remain. There will also be a number of unions that have not taken a formal position at all. Whichever position the unions have taken, I would stress that they are democratic organisations and have done that through democratic processes, whether those are conferences, their national executives or, in some cases, direct consultation with members. UNISON, our largest public sector affiliate, went through a very extensive consultation exercise with its branches and members directly. For the TUC as an organisation, we have long been supporters of a social Europe and, through our democratic processes, we have a general council that represents unions across the country: unions large and small, from a few hundred members to over a million. We have a very clear mandate from our general council to talk about the risks associated with Brexit and what it might mean for jobs, investments and employment rights in particular.
Josh Hardie
We have undergone a similar process to our colleagues in BCC and EEF. We have done a lot of consultation with our members, through our committees and roundtables, to get a qualitative feel, but we have then also done a survey of our members to understand their views in more depth. The results are consistent with other business surveys. 80% of our members overall want to stay in the EU, with only 5% voting for leave, so 15% are unsure. There is some variation by sector, geography and size, but not massive. If you look at size, it ranges from 80%‑plus down to 70% as you get smaller. We see that the less exposure our members have to European markets—
Chair
That is the big criterion, is it?
Josh Hardie
There seems to be a correlation there, although exposure in itself is a complex thing to understand, because of complex supply chains. Similarly, the lowest response we get in England is West Midlands, which is down to 69%; however, in other areas like London, we get up to 90%. There is variation, but a very consistent theme. We have, because of that, a very strong mandate from our members, not to register as a campaigning organisation, but to present their voice and views in a balanced way. That naturally lends us to a more positive argument about the impacts of Europe.
Jonathan Reynolds
I have a couple of questions on the single market. What are your views on the proposed alternative models for the UK’s relationship with the EU if we were to leave and for the ability of those models to secure access to the single market, and the relative costs and benefits of doing so?
Chair
That is an easy exam question to start with.
Lee Hopley
This is not something that we have investigated fully. We have spoken to our members a great deal about how they view the trading relationship with the European Union at present. They see it as a big advantage for their businesses and think it is important in terms of attracting inward investment. Being part of the single market is good for first‑time exporters because it is an easy first step into exporting, which is what our economy is in desperate need of at the moment. There are still some shortcomings. We do not have the fully functioning single market in services, which might sound odd coming from a manufacturer’s organisation, but, increasingly, that is the sort of business model innovation that we will see from modern industry. It is not just selling products; it will be selling services, so there are potentially opportunities to deepen the single market. As for any trading arrangements in the event of a vote to leave, the feedback that we are getting from our members is that there is not a unified vision of what that would look like. We are not getting consistency of message on the leave side. The extent to which having free trade and access to the single market, and the extent to which we would even have an appetite to negotiate free trade deals with the rest of the world, would only become obvious to members over a period of several years.
Mike Spicer
I agree with large parts of that. The problem is that, from the focus groups we have done across the country, we get a sense, when we talk about the single market, that a lot of businesses do not have a single concept in their heads. If you are a services company, the thing that is important to you is having an in‑market presence, so things like tariff barriers, for example, are not going to mean a great deal to you if the way that you conduct your business is by setting up an office in France and you are delivering services direct to the public. However, if you are in automotive engineering, the issues around customs requirements and tariff access are very pertinent to you. When the alternative models have been put out, it is quite a reductionist way of looking at it. Most businesses would expect, certainly from what I have heard, that any post-Brexit deal would have to take account of the difficulties and the opportunities that industries have that are very different to each other.
Paul Nowak
There is an issue about the premise of the question. My starting point would be that our relationship with the European Union at the moment is known. We do not know what a future relationship would look like and what model we might end up with. If we look at the situation now, there are 3 million to 4 million jobs associated with our trade with the EU. You can take those figures with a pinch of salt; there is a difference between 3 million and 4 million, but it is absolutely clear that there are millions of jobs inextricably linked to our relationship with Europe, at the moment. Some of those jobs are in our most productive, highest value-added, most highly skilled sectors, whether that is automotive, aerospace or chemicals—45% of our exports go to the European Union at the moment. Nearly half of our foreign direct investment comes from Europe, so it is the difference for us between the known of our relationship with Europe at the moment and the unknown in the future. Nobody knows what the impact of Brexit is going to be. What we do know is that it is going to create uncertainty, and uncertainty potentially impacts upon business investment decisions.
Josh Hardie
Again, I would echo a lot of that. It is important for us to listen to what our members actually really like about the European Union. Although there are challenges, there are a lot of benefits. Clearly, access to 500 million consumers—the most affluent and large consumer base in the world—is the primary benefit. We have heard talk about regulation previously. There are some benefits, particularly for medium‑sized businesses and small businesses, to being able to do things once for 27 markets and having that consistency. For some, the freedom of movement and the speed with which you can fill skills gaps is very important. Something that is often overlooked is that, for a lot of businesses, particularly for SMEs and innovative start-ups by young people, this sense of openness, collaboration and confidence across Europe is a really important thing. When you look at the alternative models, it is hard to see a model that replicates all of those benefits. Some might be closer than others, and some are potentially quite disastrous, but there is no evidence that there is a model that gets you there. A lot of our members are saying, “Why would you change it? There are things to fix here but it is working very well. None of the models add up. Why go for a less good model at the same time as injecting massive uncertainty into the market?”
Chris White
My question is to you, Paul. You mentioned three issues, which were jobs, investment and employment rights. I do not think you sat in to listen to the last session, but one of the responses we got was that, if we left Europe, we would be able to abolish regulation. I just wondered what you were specifically concerned about in terms of employment rights if we were to leave Europe.
Paul Nowak
That is a big question. I sat in for some of the last session. The first thing to say is that I do not believe, if Britain voted to leave the European Union on 23 June, that on 24 June all the employment rights derived or underpinned by European directives or legislation would disappear, but we would certainly be worried about the impact on things like working time, paid holidays, information and consultation rights, family-friendly rights, and rights around collective redundancy and parental leave; there is a whole list and I will not go through all of them. These are rights that are underpinned by European legislation. I would have a couple of concerns. First, if I look at the direction of travel in terms of what has happened in the last five or six years in this country, we have seen a steady erosion of some of our key employment rights. We have seen the introduction of fees for employment tribunals. We have seen the extension of qualifying periods for unfair dismissal. We saw the introduction of a scheme that would allow workers effectively to trade their employment rights for shares, which not only we but a large number of individual employers and employers’ organisations were concerned about. I would be worried, looking at that direction of travel, that some of the key employment rights I talked about before would be undermined. Priti Patel, who is a Minister in the Department for Work and Pensions, just described some of those key employment protections as a burden, and I think that was the description used in the last session as well. I would not see fundamental rights to protect people at work as a burden. In any market, you need to have labour market regulation. Some of those employment rights have been absolutely fundamental. As an anecdote, when I was a young shop steward 24 or 25 years ago, we used to do a training exercise where we went through which rights were underpinned by law—paid bank holidays, the right to a paid holiday and so on—and, actually, none of those rights were underpinned by law. Now, things such as four weeks’ paid holiday and paid bank holidays are underpinned by European legislation. I am sure there would be differences of opinion on this panel about the balance of employment protection and regulation, but I think they are fundamental rights and ones that our members and the people we represent at work think are very important.
Chair
Can I just follow up on that, because it is an important point? It is a question to you all. There is obviously an inherent tension between making sure that there is good employment protection and greater flexibility in the labour market. As it currently stands, where we are now, is the balance about right, both from the perspective of the worker and from the perspective of a business? I will start with you, Paul, but I am interested in everyone’s views.
Paul Nowak
I do not think the balance is right, Chair. We have been pushing very hard, as have unions across Europe, for a renewed impetus behind social Europe. We have real problems with the way things like the Posted Workers Directive, for example, would be applied, and we have real problems with the way that European directives are applied in this country. The one thing I would say, though, is that the rights derived from Europe do not drop from the sky; they are subject to a lot of negotiations between the social partners and between Governments in Europe, so, while I would like to see those rights strengthened and I think that that is an important debate going forward, nobody should think that those rights have been won lightly. The final thing I would say on this is that, while I do not negotiate trade agreements and I do not negotiate at a European level, I have negotiated with employers and I occasionally negotiate between unions, and I think that our ability to influence that framework of employment rights, whichever way you want to go, is far better served being within the European Union rather than being a voice outside trying to influence things.
Chair
Josh, would you have a similar view? Are businesses saying the same things as trade unions on this?
Josh Hardie
It is interesting. The CBI has a history of challenging what we feel is unhelpful regulation but supporting helpful regulation. We are quite strong on this. If you look at the balance of regulation that is coming from the EU at the moment, it is relatively balanced. There are some areas, such as the Working Time Directive, where we have an opt‑out and where we need to continue to be careful. Overall, there are not many red flags. Interestingly, more of our effort and discussion at the moment is on domestic regulation. Again, it is an illustration that this spectre of huge European regulation coming down and disappearing is not quite true; a lot of it is domestic and a lot of the challenges are at a UK level.
Chair
Lee, what is the manufacturing sector saying on this?
Lee Hopley
One of the frustrations with Europe is around the burden of regulation. Manufacturers have had to deal with an awful lot coming down the track over the last 10 years or so. That flow seems to be tailing off, and we welcome the fact that there is more focus within the Commission on reducing regulation, so that is potentially positive going forward. There are frustrations with certain bits of regulation, and it is certainly not just on the employment side; some of the regulations around things like REACH and the EU Emissions Trading Scheme, for example, are also impacting on competitiveness in the UK and across Europe. However, our members are pragmatic. The EU does not have a monopoly on poor regulation. As Josh just mentioned, there is plenty that we do not do sufficiently well at home that we could point to as a source of frustration for businesses, which impacts on their ability to export and innovate as well.
Chair
I asked the Prime Minister this in the Liaison Committee. Would we have been able to save the UK steel industry had we been out of the EU?
Lee Hopley
It is not obvious to me that the answer to that question is yes. Trying to work through some of the scenarios, it is not obvious that the outcome would have been significantly different.
Chair
Paul, what is your view?
Paul Nowak
I do not think the position we have arrived at in terms of the UK steel industry would be impacted positively by us being outside of the European Union. I will give you a couple of reasons why I think that is the case. If you look at some of the big challenges facing the UK steel industry, the dumping of Chinese steel would be preeminent amongst those. The UK Government have actually played a blocking role in the EU, in terms of the lesser duty rule, so there is the role of the UK Government there. You can think about other big costs for the steel industry, such as the impact of carbon and environmental taxes. The German Government spend €6.4 billion a year to support energy‑intensive industries. In the UK, we are aspiring to spend £400 million. There is nothing, within the framework of the European Union, stopping the Government doing more, in the here and now—likewise on industrial policy—to support the UK steel industry, and we are beginning to see that coming through.
Chair
Mike, going back to the original question about that inherent tension, is the balance about right?
Mike Spicer
I would agree with what Lee and Josh said, but I just wanted to add one more thing, which is to do with the perceptions. The strong sense I get, on this issue around whether the social policy employment regulations coming from Europe are right or wrong, is that judgments from the European Court of Justice on things such as holiday pay seem to strike out of a clear blue sky, with almost no warning. Remember that, for Europe‑watchers, those kinds of ongoing court cases may be of interest, but for businesses they sometimes come out of nowhere. Some of the most vocal challenge we have had from our members has tended to be on issues like that, rather than the other issues that we have discussed across the panel. There is genuinely an issue there, both real and perceived.
Richard Fuller
The Chairman asked you for the position of your organisations’ members on the referendum. Ten years ago, we were discussing the euro; maybe you could just say whether your organisations had a view on the UK joining the euro.
Lee Hopley
EEF has a long tradition of surveying its members, and we did on the euro twice, I believe, back in 2001 and in 2002. We did not find our members in favour of joining the euro.
Mike Spicer
It was long before my time, but I can tell you that we have surveyed businesses more recently on joining the euro, and there is a very, very strong majority against.
Paul Nowak
We did not actively campaign to join the euro. We took a pragmatic position that we should join the euro if the conditions were right. At the time, I seem to remember, I was the TUC’s regional secretary in the north‑east. There were four conditions, which I cannot remember off the top of my head; I apologise. The broader point I would make is that our views on Europe have changed over time. When we go back to the original referendum, the vast majority of our unions, and indeed the TUC, were opposed to membership of the common market. That position has changed over time, and it has been the subject of vigorous debate over time, as well. In the last two or three years at our congress, this has been a very live debate. As I say, some unions have always had a position of scepticism towards Europe; whether that has manifested itself in terms of Brexit or not is a different matter, but it has been a very live and real debate.
Josh Hardie
I am similar to Paul. We were supportive but with caveats about certain conditions being met. I cannot remember the four either, but they were around areas such as consistent monetary policy and a strong central bank. Those measures were not met, and so by 1990 our position was, “Not now”. It is not a conversation that is live with our members now.
Richard Fuller
That is the point, is it not? Things change. We were just talking about balance of where regulation is set. Do your organisations believe in democratic accountability for business? If so, is that best made at the UK level or at the European level?
Chair
Josh, you are looking pensive but we will start with you.
Josh Hardie
Do we believe in democratic accountability for business? Yes, it is impossible to avoid. It is a very good thing for businesses to be transparent. It is a very good thing for businesses to be held to account, and increasingly we are seeing businesses welcome that. Should that happen at a European or a domestic level? Again, it happens at both. It depends on the area and the regulation. There is a role for both our domestic Government and European Governments to hold businesses to account, to make sure they are transparent and to make sure they are operating in a way that is fair and balanced.
Richard Fuller
One has to override the other, right? Given the choice, which is best?
Josh Hardie
If I am honest, I am not sure. It is not something we have asked our members about. It may be one that I have to get back to you on.
Richard Fuller
Paul, do you have a view?
Paul Nowak
Yes. Certainly I believe that businesses should be held to democratic account, and should be held to better, more intensive democratic account. The point I would stress is that all European directives have to be transposed into UK law. Quite often, national Parliament has a great deal of say over how those directives are transposed, and I would like to see, for example, more engagement of the social partners in the transposition of those directives, which is something that has happened on various directives. If you take the national minimum wage as an example, there is no requirement on countries across Europe now to have a national minimum wage. We have argued that there should be an obligation on Governments to have a national minimum wage, but we would not want to see the level of the national minimum wage set at a European level. We think there is value in having a tripartite system, as we do in the UK, for determining the level of the national minimum wage. These things are interrelated; it is not a case of Europe or national. Even in a UK context, for some of these issues—for example, the approach to the public sector workforce—there is increasing divergence between what is happening in Wales and Scotland and in Westminster. Some of that divergence we think has value; other bits we would be concerned about. I would not want to pin the tail on the donkey on Europe, national or devolved Administrations. It is really horses for courses.
Mike Spicer
Businesses already have to deal with different levels of democratic accountability. One of the issues that we have been very vocal about in recent months is what we perceive to be a lack of accompanying democratic accountability for some of the changes to local government finance, for instance, which is slightly outside of this. Set against that, if you take an area that we have not discussed, which is business taxation, it is an interesting area because it is affected not only by our membership of the EU but by our membership of other organisations, such as the OECD. That is an area in which it is not altogether clear exactly where accountability falls. Businesses expect that, on certain issues, there have to be international agreements, whether that is on the environment, trade or whatever. You cannot necessarily say that it is one versus the other; as Paul said, it is horses for courses.
Lee Hopley
This is not an issue that we have particularly explored with manufacturers, so I am not confident that I could give a truly representative answer to that question.
Paul Blomfield
Josh, you talked about free movement of labour being one of the things that is attractive to business. I am guessing that is something that Mike and Lee would probably concur on. There clearly is a concern around that, and a flipside to that. Many might argue that accessible cheap labour gives business the opportunity to evade responsibilities to train a skilled labour force. How do you respond to that challenge?
Josh Hardie
The evidence shows that businesses are real champions of developing skills and have a very strong track record on it. The apprenticeship levy will drive more of that. You are right that it is absolutely important that businesses continue, as they will, to invest heavily in skills and ensure that the UK workforce is fit for where the UK needs to be in generations to come. Having said that, in any given situation, there are always skills mismatches in every economy. The ability across Europe to fill those mismatches, both in terms of people coming from other countries to the UK and in terms of people from the UK travelling across Europe to other jobs, is incredibly valuable for Europe, particularly, for example, in science and engineering areas. In an ideal world, we absolutely need, to some degree, for that to be a short to medium-term option as we build our skills in the UK to fill those gaps, but it is an issue at the moment, it is there, and being able to solve it through the EU is very valuable.
Paul Blomfield
Would that be your view as well, Lee?
Lee Hopley
Yes. I do not want to repeat what Josh said, but a lot of our members already invest in apprenticeships. It is not just about recruiting people from the rest of Europe; the ease with which you can move workers around subsidiaries to fulfil contracts across Europe is also seen as an advantage.
Paul Blomfield
The question of immigration control is increasingly the ace card of the leave campaign. The impression has been given that, if we vote to leave, we will be able to close our borders and stop the flow of inward migration. What impact do you think that will have on business? Could I ask Lee, Mike and Josh, because I want to come back to Paul with some different questions?
Lee Hopley
If our members were looking at facing the same kind of restrictions and compliance requirements on recruiting from other parts of Europe as they did from non-EEA countries, that would be an issue for them. They see the process of engaging with UK Visas and Immigration, and even just recruiting overseas students into full‑time vacancies in the UK, as extremely problematic, so that would pose challenges for manufacturing.
Mike Spicer
I talked earlier about the most common questions we were asked and discussed in the focus groups that we held across the country. Certainly one of those would be, “What happens on T+1?” in terms of staff they already have who come from elsewhere in the EU. I get the sense that they want more clarity than there is around that. In particular, there is a real desire to see that clarified very quickly. You could imagine, perhaps, a commission being established very swiftly in the event of Brexit, looking specifically at the issues of skills gaps and the immigration status of the workers they already have. It is a question that we are asked a lot, and the fact that we are still being asked it means that there is a lack of clarity there as to what would come next.
Paul Blomfield
Would you be worried, as I took from Lee’s answer, if Brexit was accompanied by no change in the immigration rules that currently exist for non‑EEA nationals and that was simply applied to everybody? Would that be a problem?
Mike Spicer
It is certainly the case that, for Tier 2 migrants who come from outside of the EU—so people coming into specific jobs—the visa regime that accompanies that is quite costly. It also has a level of uncertainty attached to it. It can be lengthy as well. For many businesses, their own experience of that can be quite frustrating, so they would want to see a system that is less costly, swifter and more certain.
Paul Blomfield
So liberalisation of immigration rules.
Mike Spicer
Something that offers them a system that is not as costly or uncertain as the current visa-based system would be for Tier 2 migrants.
Josh Hardie
Again, I would echo a lot of those thoughts. First, it is important, from the CBI’s perspective—and I suspect from the perspective of a number of the other witnesses—to separate some of the more emotive aspects of the immigration debate from the skills debate, which is what we have a mandate to talk about. The access to skills from the EU, as I have said, is very important and very useful. I have one example of a science and engineering member who has gone to India to attract skills. A year later, they are still waiting for that person to start. Within the EU, that can happen in a matter of weeks, if not days. That is a very real consideration for businesses. The thing that worries a lot of our members is when you talk about what happens after a potential Brexit vote. If there is a Brexit vote, it is reasonable to assume that the immigration debate will be one of the things that pushed it that way. If that is the case, it is very hard to see a future model that involves free movement of labour, because you would then be giving up the very thing that actually decided the referendum. With that disappearing, whether the deal is a WTO, a Switzerland, a Norway or a Canada, it does not feel right to have free movement of labour within any of those. That is a very grave concern for businesses, for the reasons that we have discussed.
Paul Blomfield
Paul, can you reflect on the trade union movement’s views on the issues? I have spoken at trade union meetings where clearly this is a real concern to people who feel that conditions have been eroded by membership of the European Union.
Paul Nowak
Absolutely, and migration is an issue that lots of our members care very deeply about. If you look at our membership, they reflect the British public at large. We know that this is a key issue of public concern. Our starting point is that, across the European Union, there is value in the free movement of labour, but that is precisely why you need a strong framework of social and employment protections to underpin it. We know from all the studies that there is no evidence overall that migration drives down wages across the economy. In fact, I think LSE published a report earlier this month that counterposed that. However, we know that that is an average, and we know that there are some sectors, some particular parts of the country, some occupations and indeed some employers that are using migrant workers, in quite a cynical way in some cases, to drive down pay, terms and conditions. Can you pin the issues that we face around wages in the UK all on migrant workers? Absolutely not. Wages have been declining as a proportion of GDP in this country for the last 30 years. There are lots of reasons for that, including the relative weakness of unions in sectors like, with some notable exceptions, retail and hospitality. However, there are other policy issues at play here as well. In the last six or seven years, everybody working in the public services has been subject to either a pay freeze or a pay cap. That is a real‑terms pay cut; that has an impact on holding down wages. We have seen a growth in precarious forms of employment. Everybody talks about zero‑hours contracts, but there are other things that have an impact on wages: umbrella contracts and bogus self‑employment, which is endemic in some sectors, such as construction. There are real concerns there. For us, the solution is not to clamp down on migration or blame migrant workers; it is to have a stronger domestic policy framework that supports decent wages right across the piece. What does that look like practically? To give you an example, look at Germany; it is not a perfect example by any stretch of the imagination, and the proportion of the workforce in Germany that is in a trade union is less than it is in the UK, but they have a strong system of sectoral collective bargaining that establishes a level playing field across sectors. That is the sort of active labour market policy that a Government could adopt in the UK. There is nothing that precludes you doing that while being a member of the European Union.
Amanda Milling
I have a question for all of you, but I want to start with Mike. We have talked about regulations, and we are going to go back to that topic again, and about the difference between EU regulation and UK regulation. I am interested to understand the extent to which businesses recognise that there is a difference between the two, and whether it is something you picked up on in the focus groups you have been doing around the country.
Mike Spicer
In terms of regulation more broadly, I would say there are roughly three areas that tend to come out in discussions. The first is about what you might call product standards‑related stuff, so technical things that are quite industry‑specific. These relate to the manufacture, sale and distribution of goods and, to a lesser extent, services. The difference that can open up in business opinion is that, if you are primarily a domestic‑focused business, you might see that as a net cost—that you are having to comply with an international standard. If you are an exporter, particularly if you are active in the European market, you may well see that as a cost-saver, so there are quite big differences that open up. In terms of the perception of where it comes from, certainly I have picked up a widespread perception, particularly regarding directives, as opposed to regulations, which have to be transposed into UK law, of heavy-handed implementation and interpretation. One example of that was brought up in the last session, which is to do with some of the land use‑type directives, such as the Habitats Directive, which plays such a big role in the planning system. It is a directive that is really focused on cross‑border situations, where you have adjacent land or rivers or waterways; obviously that is not something that we encounter in Great Britain, and yet it is generally thought to feature more commonly in planning decisions in this country than in others. Things like that give the perception, “Hang on a minute here. Other countries seem to manage to make use of those directives in ways that are less heavy‑handed”. The enforcement point is another good one. The thing to understand is that there is a wide variety of practice already within Great Britain. We have pilot schemes, for example, in Leicestershire and the West Midlands called Better Business for All, which is about enforcement agencies at a local level coming together and working together so that they can reduce the burden of being inspected, for example. There are practical things that you can do, but businesses on the whole see the issue of gold-plating, and they see that there is a difference between where product standards come from, for example, and how directives are transposed.
Amanda Milling
In your focus groups, do businesses think that, should we decide to come out, this regulation is going to vanish?
Mike Spicer
Again, this is something that has been discussed. From what I have heard—and we have not done a representative questionnaire where we have asked this question specifically—
Amanda Milling
It is qualitative research; I get it.
Mike Spicer
I get the strong sense that there is no expectation of a great repeal, and that it is easier to control the flow of new regulations than it is to reduce the stock of existing regulations, partly due to some of the things that have already been discussed. A lot of the big‑item regulations are in sensitive areas of policy, such as social policy, and you would expect there to be long lead times in Parliament to get that through and for very engaged interest groups to take firm positions; you would expect there to be a long process of assessing the costs and benefits. Businesses know this, because they see it as new laws get passed. There is no expectation that there will be a great repeal Act of some kind, simply given the complexity of it all. There is an expectation that something might be possible in terms of reducing the future flow, which is quite different.
Josh Hardie
To the first point of the question, about whether they notice and whether they understand, that will depend slightly on the business. Most businesses will have a good understanding of what is EU legislation and what is domestic regulation. There is probably slightly less understanding among, for example, smaller owner-managed businesses, but they probably on balance have a better view of that than the general public. Regulation is very complicated and businesses’ focus is much more on good versus bad regulation than it is on where that regulation comes from. That is what we hear. It is not so much, “This came from the EU”, or, “This is domestic”; it is, “How does this help me? How does this make my life easier rather than more complicated?” On top of that, some of the regulation is very clearly European, such as the digital single platform or consistent packaging for products, which can be fantastically beneficial for businesses wanting to export. It is quite a mixed picture. What we are hearing from businesses is absolutely focused on the bad regulation. As we have heard, there is not a massive expectation that there would be a sudden bonfire of regulations, were we to leave the EU. A lot of the regulation is actually very useful, so let us be in there influencing it and making sure it is good, rather than walking away, because a lot of the regulation would apply to us anyway.
Lee Hopley
I have just one point to add, really, about the extent to which a huge bonfire of regulation would actually make a massive difference to the economy and the growth prospects of our members. Yes, regulation is important, and it can be a source of frustration, but, looking at some of the big macroeconomic challenges that we face as a country, is deregulation the only answer when we have a bit of a deficit when it comes to innovation spending, for example? Can we get more bang for our buck from that through collaboration with Europe? These are all things that our members have expressed as perhaps more significant in terms of their future growth prospects than simply the regulation argument.
Paul Nowak
I have two very quick points. First, I would make the observation that, in my experience, businesses are remarkably adaptable to regulation. If you think back to the early 2000s and late 1990s, when the national minimum wage was introduced, we were told it was going to cost us a million jobs. It did not, and businesses adapted. I think there is a broad consensus now that the national minimum wage is a good thing. If you look particularly at some of our larger multinational corporations, they adapt to the environment they are in. If you are a large multinational automotive firm in Germany, you are part of the sectoral agreement and you have a supervisory board that workers are represented on. If you are in the UK, you do not have those mechanisms in place but you have a collective bargaining agreement, probably, with a trade union. If you are the same German multinational operating in South Carolina in the US, you probably have no relationship with a union at all. The point I am making is that the employer adapts itself to the regulatory environment it is in. I will just make one observation about the people we directly represent. Quite often, people do not understand that some of those key protections they take for granted are underpinned by European directives and legislation. If Britain votes to remain on 23 June, this is an issue about the discourse that we have on Europe, because successive Governments—I am not going to pin the blame just on this Government—have quite often been happy to let Brussels take the blame for issues and never to give credit where credit is due. That is an important part of our national discourse.
Chair
Amanda has touched upon a very important point, in terms of gold‑plating of European regulations. Have your organisations done any work in terms of reality versus perception? Do we gold-plate regulations in Britain?
Paul Nowak
Shall I start and just say no? As I said before, we have real problems with the way that some of those directives have been transposed. If you look at agency workers as an example, the so-called Swedish derogation effectively allows employers to circumvent the spirit of the Temporary Agency Work Directive by directly employing agency workers, so there is still a real issue in this country. In particular sectors, of which food processing would be one, agency workers would be working alongside directly employed workers on much less favourable pay terms and conditions, so we do not have that experience of gold-plating. I wish it were the case, and we would like to argue that there is a need for a stronger regulatory framework, but I do not sense it across the UK at all.
Chair
Are there any other comments in terms of any work being done? Is it just a perception that we always apply to the letter of the law and France and Germany put these regulations in a drawer and do not even think about them?
Mike Spicer
There is a slight issue. Taking the planning one that I brought up before as an example—the Habitats Directive—the way that that manifests itself in our system is different because our system of planning is different. It is not necessarily one of intent. It could simply be the system that it finds itself in and how that gets expressed, so some of the reporting requirements, the number of committees that it has to go through and things like that might be partly related to the way that our system is different. There has not ever been, certainly to my knowledge, a quantitative comprehensive work of all the directives that we have, looking at that.
Chair
I want to finish with foreign direct investment. Ernst & Young produced its latest attractiveness survey yesterday, and I have it in front of me. The picture is really interesting. We have been outstanding, in the last year, in attracting foreign direct investment into the UK, and we have had a real success over the past 15 or 20 years with regards to this. It says in Ernst & Young’s report that last year there were 1,065 FDI projects, creating 42,000 jobs. This is a great success for the UK. However, it says here, “There are worrying signs for the future.” When asked about their likelihood to invest in the UK in the next year, only 23% of investors responded positively, compared to 27% last year. That is the lowest UK figure since 2010. When asked how the UK’s attractiveness for FDI will change in the next three years, only 36% of investors expect that it will improve, compared to 54% last year. That is the lowest UK score since 2004. The UK’s ranking for Europe’s most attractive locations for FDI fell relative to Germany. We are now two percentage points behind. That picture is not getting better. I have two questions to you all, if I can. First, to what extent has that success in foreign direct investment been as a direct result of us being members of the European Union, in terms of direct investment as a springboard to the single market and 500 million consumers? Secondly, to what extent are we putting this at risk as a result of this referendum agenda?
Josh Hardie
I have quite a brief answer. There are lots of reasons to invest in the UK, and lots of those reasons will remain. We have a great location, time zone and language, and a good skills base. All of those things will stay. We can still be an attractive place to invest. Having said that, of course access to the EU and 500 million consumers is a very significant pull. It makes us even more attractive. Of course, adding an uncertainty, you have the short‑term impact; we are seeing less and less investment right now because there is a referendum coming, no matter what the result. People quite naturally—why would you not?—put large spending decisions on hold until you know the outcome. There is then the second question: if the outcome is to be outside of Europe, it is completely logical to say that we are a slightly less attractive place to invest in than we were before.
Paul Nowak
To look at it from a different perspective, Ernst & Young give a pretty clear indication in terms of the concerns that exist more broadly about foreign direct investment. I talk to senior representatives in our private sector unions, and one of the things they are very clear about is that, if Britain voted for Brexit on 23 June, we would not see plans to close down on 24 June. They would be really worried about the impact of further investment decisions coming down the line. What is the difference between last year and this year in terms of that lack of confidence? It is the European referendum. If that is uncertainty caused by the referendum itself, for the uncertainty caused by Brexit you could take that and multiply it a number of times.
Mike Spicer
I agree largely with what Josh said. I would just add one further point. If you look at some of the most high‑profile examples of foreign direct investment, they tend to be large manufacturing companies. Of course, as was said in the previous session, they go through a process of competing to build that particular make of car or whatever it might be. However, perhaps less well known are some of the large service companies that come here as well, such as the big American accountancy firms and so on. As Josh said, there are many reasons why they would do that; language is clearly one of them, and the tax environment would be another. Some of those things would be entirely the same post‑Brexit; others, such as tariff-free access to the European continent, would be uncertain. I think the message my members would want to get out is that they want clarity as fast as possible. That is what any investor would want. What would be the nature of the post‑Brexit world that they will encounter, and what does that mean if they are a manufacturer or a service company?
Lee Hopley
Global competition for this kind of mobile investment is really fierce. Companies will go where the returns are most predictable. If the UK is not offering a stable and predictable framework in which you can judge the returns from that investment, that is clearly going to push us down the rankings, whether that is around domestic policy decisions or our relationship with Europe; it is a fairly straightforward equation, I would have thought, over the next few years.
Chair
Colleagues, thank you very much for your evidence. That has been really helpful and informative to us. We are really grateful for your time. Thank you very much. Oral evidence: Business views on the EU referendum, HC 88