MONDAY 2 JULY 2007

Ms Karen Clements and Mr Clive Davenport

  Q65  Chairman: Thank you very much indeed for coming. We may be disturbed by divisions. The plot is once you hear a firebell going, it is not an emergency; it is a division, and we then break for ten minutes and those that are voting depart and come back and then we reassemble. Apologies for a slightly lighter number than normally present. That is partly because a statement is coming up on the emergency events over the weekend. For the record, I wonder whether Ms Clements and Mr Davenport could both introduce themselves so that we have it on the record, and perhaps I can ask Ms Clements to make an opening statement and Mr Davenport to do the same and then we will go to a series of questions.

  Ms Clements: My name is Karen Clements and I am an EU Adviser for the British Chambers of Commerce.

  Mr Davenport: My name is Clive Davenport and I am the Chairman of Trade and Industry at the Federation of Small Businesses.

  Q66  Chairman: Ms Clements?

  Ms Clements: The British Chambers of Commerce is a national network of quality accredited chambers of commerce positioned at the heart of every business community in the UK. The BCC represents 100,000 businesses of all sizes and across all sectors of the economy and together employ over five million people. 90% of our business members are SMEs and roughly 70% operate in the service sectors. We fully support UK membership of the European Union and we believe that the Single Market is probably its most important achievement to date. The economic benefits of the Single Market are well-known. The Commission has estimated that in the first ten years it created 2.5 million jobs and an extra £593 billion in prosperity. Intra-EU trade has increased, I think, by 35% in the last ten years alone and some extraordinarily high figure of 392% with the ten new Member States. However, it is fair to say that our membership has become gradually more critical of the European Union in those last ten years and the Single Market as well. We believe that the reasons for this disenchantment are increasing regulation, particularly environmental and social, and the fact that our member businesses are not reaping the full benefits of the Single Market. Why is that? The reasons are threefold, we believe. In the first case, the Single Market is not yet complete, not least in the services sector. In the second case there is persistent national abuse of Single Market principles, whether it is flouting the principle of mutual recognition or failing to implement and enforce laws on time and evenly. And finally, and perhaps most importantly—and this is an area that we have not investigated yet in a great amount of detail—members are not actually making the most of the opportunities the Single Market offers through a lack of information and, they believe, government support in helping to give them access to new markets.

  Mr Davenport: My Lord Chairman, the Federation of Small Businesses welcomes the opportunity to respond to this call for evidence. The FSB is the UK's leading non-party political lobbying group for UK small businesses, existing to promote and protect the interests of all who own and/or manage their own businesses. With over 205,000 members, the FSB is also the largest organisation representing small and medium-sized businesses in the UK. The FSB believes that the Single Market has been a remarkable success story but that the small business community has yet to share in its benefits. The barriers still remain, not least in the service sector, and the threat posed by protectionist tendencies across the EU is a concern to us. In its 2006 survey to the business community Lifting the Barriers to Growth, the FSB found that only 2% of members trade with EU markets. However, small businesses represent 99.8% of all businesses across the EU and they are Europe's primary job creators and innovators. If the Single Market is to realise its full potential it must include the opportunities for small businesses to prosper. On a personal note, I am a managing director and owner of a small business of four people so it affects me directly.

  Chairman: Good, thank you very much. Lord Lee?

  Q67  Lord Lee of Trafford: What are the remaining barriers to firms seeking to offer their goods or services in other Member States of the European Union, and particularly if you could break the answer down into what the most important of those barriers are? Secondly, are SMEs more likely to encounter barriers when seeking to offer their goods and services in other Member States? And thirdly, what measures are needed to overcome those barriers? So the main thrust of my questions is the remaining barriers.

  Ms Clements: The most important barriers are the continued existence of national rules and the ability for Member States to apply those national rules, either legally or illegally. I would say that whether it is in terms of price regulations or public procurement specifications or licensing systems or advertising rules Member States are still applying national rules, and that is a considerable barrier for SMEs in particular who do not have resources to find ways around this or indeed to have recourse to legal proceedings. Other barriers include slow implementation of EU legislation, uneven enforcement by various Member States, and I would say again, as I said in my introduction, the big barrier is the lack of information on the opportunities that the Single Market has to offer for small businesses and the lack of support from government services helping them to overcome those barriers that are not necessarily legalistic but, for example, are cultural, linguistic and geographic barriers.

  Q68  Lord Lee of Trafford: Mr Davenport, is that broadly your stance as well?

  Mr Davenport: It is, yes. I think there are three main points. Access to information is the biggest one and there being no single point of contact, there being no ability to go to a central source to get information and to know that information is reliable. There are many little trade organisations throughout Europe and a lot of our members are not even aware they exist, they are just told they cannot trade in those areas but do not know why they cannot trade in those areas. Those are the fundamental problems that occur. Over-implementation of EU Directives is also a problem. It creates peaks and troughs in what should be an equal market and there is a disproportionate increase in regulatory burdens for SMEs. The whole structure of the EU, and to a large degree this country, is geared to large businesses and a small business has a totally different approach and it has totally different pressures, as my colleague has said. The problem is that we have small numbers and we have high time constraints in our daily work and we are not able to access freely the market because of those time constraints and that is one of our biggest problems.

  Q69  Lord Haskel: You both seem to feel that lack of information is a problem. Who do you think has the task of providing that information? Is it the Government, is it the trade organisations for different industries, is it your Federation of Small Businesses, is it the chambers of commerce? Who has fallen down on the job?

  Ms Clements: I think that the role is essentially one for government but that there is a huge role on our part that chambers can play and do play, but we would like to do more. We deliver two programmes for the UK Trade & Investment Agency: one to ensure that SMEs can overcome more readily the cultural and linguistic barriers that frequently occur for SMEs entering new markets; and also, which might strike you as obvious, another programme to ensure that businesses actually do market research into the market that they wish to enter before they do so.

  Q70  Lord Haskel: So it is the businesses themselves which you think have fallen down on the job?

  Ms Clements: I think it is a combination of the Government and information and education that we need provide. I think there is a lack of confidence, particularly with regards to the EU, and it is interesting to see that it does not apply so much to China and India which arguably are even more inaccessible in terms of their geographical location, et cetera. There is a perception that their competitors on mainland Europe have got it all sewn up between them and it is too complicated a market to enter because there is too much competition and they are at an automatic disadvantage given where they are coming from and the fact that they have not built up the partnerships as early as principally the German, French and Italian companies have.

  Mr Davenport: One of the advantages that a lot of small business in Europe have is that by the very nature of Europe they are very close to their borders and there is automatic cross-movement between borders whereas in this country because of those 25 miles of water it has made it very much "them and us" and it is a barrier to be broken down, and my feeling is that small businesses, even organisations of the size of my colleague's and mine, have not the resource to be able to support the whole thing independently. I think it really does fall to national government or even EU government to create a system which allows an easy, single access so that if you wanted to start a building company in France you can pick up the phone and find out what the problems are to do that, but that does not exist at the moment.

  Q71  Lord Haskel: But if you are a member of a trade association to do with the building industry, should not the trade organisation be in a position to provide you with this information because, after all, you pay some sort of subscription to them?

  Ms Clements: It would have to be a very, very high subscription.

  Mr Davenport: I do not think £100 a year would be quite enough to cover that, that is the problem. We would not have the resource to be able to fund it.

  Lord Haskel: Right, thank you.

  Q72  Lord Geddes: Mr Davenport, in your answer just now I thought I got an implication from you that there are excessive rules and regulations in some countries within the EU as opposed to others. Was that a correct inference and, if so, as a generality can you name and shame?

  Mr Davenport: I think that there are problems with the relationship between our prescriptive type of legislation and Europe's less prescriptive type of legislation. We were involved in a meeting recently—to give you an example—with a lot of very large businesses and they prefer to do business in Europe sooner than in Britain. The reason they did that was because although health and safety and all of the other environment agencies were very good to the businesses in this country, and helped them, they were very obliging and very amenable, at the end of the day they preferred to be in a position where they knew exactly where they stood in whether it be France or Germany or whatever and they knew the penalties if they failed, they would be closed down or suspended or whatever. In this country we tend to be handholding all time and they would much prefer—which quite surprised us—to be exactly the opposite of that. They would prefer not to have handholding and to be much more left alone to do their job, which is make money, which certainly surprised me because I thought that was the exact opposite of what you would have thought would have happened.

  Q73  Chairman: Could I ask a question of you both. Can you cite examples of SMEs coming from, for example Poland or Germany or France or Spain, and successfully doing business in this country? I think the implication is that gathering the information perhaps across language barriers and with different regulations being interpreted differently in different country makes it slightly difficult for SMEs.

  Mr Davenport: If we follow on from what I was just saying, what happens, say you have got somebody from Poland coming here, we would be tending to hold their hand and encourage them and make sure they have got their health and safety environment correct and they have got all of the other specifications correct as they are working whereas if you take someone from here going abroad, they would have just "No, you can't do it" and not even know why they cannot do it. It would be a local trade organisation or something like that that would stop you.

  Q74  Chairman: So you are saying that actually we are slightly more user-friendly?

  Mr Davenport: Yes.

  Q75  Chairman: Our regulatory agencies and indeed others in helping inward investment and inward trade?

  Mr Davenport: Yes, Polish plumbers can get every assistance and advantage from this country that they need so that encourages them to come to this country, which is what they have been doing. You do not see too many plumbers in Britain going to Poland.

  Q76  Lord Geddes: I really am very surprised at that last comment because the perceived situation is that this country has a reputation for, as it is called, "gold-plating". Up comes an EU Directive and what does the UK do? It piles on layer after layer of extra legislation on top of it. I am deliberately exaggerating. The inference that you are giving is exactly the opposite to that.

  Mr Davenport: All I can do is tell you the information we had recently that large businesses—and I am not talking about small businesses—would prefer not to have legislation. That is what was said to us. I think that we do have a problem with gold-plating but that is another issue completely.

  Q77  Baroness Eccles of Moulton: Could I ask a very, very quick one just to follow on from what you were saying about Polish plumbers coming to Britain. Do they also tend to go to other older EU Members like France, Germany and Italy or is there something special about coming here that they particularly like?

  Mr Davenport: We removed the legislation for any restrictive powers. There was a standard of four years, if my memory serves me. We took it away straight away but Germany and France did not do that.

  Q78  Baroness Eccles of Moulton: I remember, that is the reason, but otherwise if they had been as open as we have there is nothing else special about us?

  Mr Davenport: No.

  Chairman: We will come on to the whole issue of enforcement and I am sure this is one of the issues that we will be pursuing with the Commission when we go there later this month. Lord Haskel?

  Q79  Lord Haskel: Enlargement—what has been the impact of the recent enlargement of the European Union on the Single Market as far as your small and medium-sized businesses are concerned? Has it helped or hindered these businesses in seeking trade in other Member States?

  Ms Clements: Obviously it has increased the size of the domestic market and therefore the opportunities, not least because most of the new Member States have low tax environments and relatively cheap but highly skilled labour and a growing middle-class with a great deal of purchasing power to spend on Western products that have a pretty good reputation still. A lot of our members have used partnerships in those countries, and in particular the low manufacturing costs, to create more innovative products that they are then selling worldwide, so they have used the Member States as a springboard really to increase their sales. That has been more a case perhaps with the manufacturers than it has with the service sector. I think the service sector has definitely encountered more problems and it is particularly with the service sector that you find the low levels of confidence in wanting to tackle the bureaucracy or the geographical barriers or the linguistic barriers or cultural barriers. The reports we have had from our members show that doing business in the Central and Eastern European countries is very different from doing business in Western European countries and they have found that a huge obstacle. Those are the ones that are actually trying. There is then a whole swathe of businesses who do not even put their toe in the water because they assume that the markets are sewn up by their competitors, by France, by Germany or Italy, who have had more time to build up relationships. Again members have stressed very highly that in these countries having partnerships with existing business is absolutely crucial to developing opportunities out there and they feel that their competitors have taken a lead leaving little for them to do. They are largely unaware, I would say, of the mutual recognition principle or indeed the country of origin principle and do not realise that they are legally allowed to sell whatever product or service they have to market and sell in other Member States as they can do so at home. Again we go back to the lack of information available to them, information that I think government and ourselves have taken for granted in so far as back in 1992 when there was the "big splash" over the Single Market—and at that time I happened to work for the CBI and we put an enormous amount of effort and resources as did the DTI into raising awareness of the benefits of the Single Market—that obviously helped to raise awareness but since then there has been absolutely nothing, and I think a lot of new businesses coming on the scene, particularly SMEs, are not touched and it is much more difficult to reach them with the type of information that they require.

  Mr Davenport: We have no real evidence to suggest that enlargement has hindered anyone but, having said that, very few of our members are engaged in the market. The figure is 2% actually engaged, which is a very low amount. Enlargement has affected SMEs, small businesses particularly, much more through the influx of labour in the new Member States; over 6% of FSB members have employed workers from the new Member States already, so there is an awful lot of people coming in.