Thank you for inviting us to respond to your written inquiry. We attach our joint response below.

Each successive wave of enlargement has broadened and extended the single market and in turn the scope for gains from trade, investment and competition. As a result of the 2004 and 2007 enlargement rounds, the single market has increased by 104 million consumers (ie adding 20% to the population) and the EU GDP was about 850 billion euros larger in 2007 than it would otherwise have been. These enlargement rounds have therefore provided excellent investment opportunities in the new member states, providing good returns for investors and stimulating growth in the host countries.

  UK trade with the eight central and eastern European countries which joined in 2004 was £6.4 billion in 2005, up 151% since 1995. Trade with Romania and Bulgaria was just over £1 billion, up 250% over the same period. The new member states are growing rapidly—over the last five, years growth averaged over 5%—and they are expected to continue to grow by over 6% this year and next. This means we can expect further benefits from trade, investment and competition going forward.

Are there considerable barriers to firms seeking to offer their goods or services, or to consumers accessing these goods or services, in other Member States of the EU? If so, what are the most important of those harriers? Are small businesses more likely to encounter barriers seeking to offer their goods and services in other Member States? What measures are needed to overcome these barriers?

  The barriers to the Single Market that remain are predominantly in the services sector, where SMEs represent 90% of UK and EU businesses, Whilst some of these gaps will be plugged by implementation of the Services Directive, further measures are needed in key sectors such as energy, telecoms, financial services and postal services, Key barriers include continued existence of protected national monopolies, as well as legislative requirements and burdensome administrative practices. Further market opening of these industries could create up to €95 billion of new wealth and will create 360, 000 new jobs in the EU.

  Businesses, in particular SMEs, sometimes face barriers in selling goods that have not been harmonised at EU level (currently around 25% of goods), The UK believes that strengthening of the mutual recognition principle will provide them with greater legal certainty and reduce costs of complying with host country rules and regulations.

  Consumers also face barriers to access of goods and services. However, the lack of consumer confidence in cross-border purchasing is in itself a substantial barrier. The Government believes simplifying the consumer legislative framework that providing greater information and empowering consumers will go a long way to overcoming these.

Do you consider further legislative measures by the Commission to be necessary for the completion of the Single Market? If so, what measures would you consider appropriate?

  The Single Market is an evolving set of markets that will never be complete. The Government believes that to respond to today's challenges a new approach is needed that moves beyond the goal of "completing" the Single Market and is more outcome-focused, more effectively prioritised and which uses a wider range of more flexible policy tools. With much of the legislation required for an effective, well-functioning Single Market now in place, further benefits will depend on more effective implementation and enforcement of existing commitments and embedding better regulation principles and proactive competition policy into Single Market policy-making, Flexible approaches and alternatives to regulation should be carefully considered.

  Further legislative measures may be required in some areas where they can be supported by robust economic evidence. For example in the energy sector we welcome the Commission's proposals for more effective competition through ownership unbundling; in postal services we would like to see agreement of the new proposal to achieve full market opening by 2009.

Are the current provisions for monitoring market functioning and performance effective? What evidence is there that Member States are honouring their obligations equally?

  Market monitoring should be used to identify inefficient and/or anti-competitive markets and are not delivering consumer benefits, Strong action should follow when this work produces evidence of market imperfection, HMG would like to see the Commission doing more, using market analysis to prioritise its actions and to evaluate the success of its interventions. Market monitoring can point to solutions other than harmonisation of laws to achieve single market objectives—competition enforcement, self regulation and/or regulation might be more effective in some circumstances. The recent sector inquiries into competition in the Financial Services and Energy Sectors were a welcome development of the pro-active use of market monitoring at a European level, and provided evidence of barriers to competition and the effective functioning of markets at a Member State and Community level.

Is there a need for greater regulatory cooperation between National Regulatory Authorities?

  Yes, Member States have a key role to play in supervising national markets. The Government would like to see greater regulatory cooperation across the EU. A flexible regulatory framework will require greater regulatory coordination and consistency coupled with a robust process for reaching agreement on cross-border issues. Overall the governance will depend crucially on stronger and more independent national regulatory authorities. The Government believes that Member States should commit themselves to greater independence for national competition authorities, and agree to regular independent evaluation, which could be undertaken by the Commission, to benchmark national competition regimes.

Are the current remedies available to the Commission to enforce single market legislation adequate; and are they used effectively?

  Effective enforcement of existing rules is essential to realising the benefits of the Single Market and building awareness and credibility amongst citizens and businesses. An increased use of competition policy, coupled with a thorough review of enforcement mechanisms will play a central role in strengthening the single market. For example, greater use of market investigations and encouraging a greater role for private actions against anti-competitive behaviour is key to stimulating higher levels of market dynamism. Equally a new system of prioritising investigations into breaches of EU law based on economic impact, concentrating resources where there are major impediments to competition could be introduced to maximise competitiveness gains.

What is your view of the Country of Origin Principle, whereby a company registered to provide services in one Member State is automatically qualified to provide those services in any other Member State on the basis of home country regulation? Does this Principle constitute the best basis for single market measures? How is cross-border activity by small businesses helped or hindered by the Country of Origin Principles?

  The Government believes that the country of origin principle is an important tool to deliver the free movement of goods and services. The principle is important in providing legal certainty to SMEs, who represent more than 90% of the UK and EU economy, but who are often deterred from trading in other Member States because they have to search for and comply with different rules and regulations, in addition to those of their own Member State, each time they provide a service or sell a product. Increased use of the country of origin principle in single market legislation will help those firms wanting to "test the market" before they set up business in another Member State. The negotiations over the Services Directive show that it is difficult to reach agreement on a pure application of the Country of Origin Principle, but does indicate a way forward.

Do the concepts of the "national champion" and "economic nationalism" pose a threat to the single market?

  The concept of economic nationalism encapsulates measures to create national champions and protect domestic industries to avoid job losses in response to globalisation, international competition and domestic political pressure, The Government believes that these concepts are directly threatening to open and competitive markets, and will not protect jobs and growth in the long-term, It is only through embracing reform, openness and undistorted competition and rejecting protectionist policies that Europe will be able to realise the full benefits of the Single Market and compete effectively in a globalised world.

Should there be a greater role for technology and research in facilitating the single market?

  The UK believes that science and technology makes an essential contribution to improving competitiveness and growth. As such, the UK supports the inclusion of research and innovation as a central element in creating jobs and growth, and established this area as a European priority at the Hampton Court summit during the UK presidency. It is through a dynamic and flexible Single Market and the achievement of structural reforms in line with the Lisbon Agenda that Europe can provide the framework economic conditions to allow research and development to flourish. The new 7th EU Framework Programme for research will play an important role by targeting resources and expanding opportunities for UK businesses and researchers.

What is the significance of the single currency to the operation of the single market?

  The single currency can play a role in strengthening transparency of the single market. The elimination of exchange rate risk and transaction costs under EMU also facilitates the provision of cross border financial services, However the success of the Single Market is not dependent on the single currency. Structural reforms that achieve greater integration in financial markets as well as more flexible product and labour markets, will help to both strengthen the Single Market and ultimately lead to a better functioning currency union, The Government's position on joining the single currency remains as set out by the Chancellor in his statement to the House of Commons in October 1997, and again in the Chancellor's Statement on the five tests assessment in June 2003.

SECTOR SPECIFIC QUESTIONS

ENERGY

Has there been sufficient unbundling of gas and electricity market in all Member States?

  The Commission's recent sectoral inquiry into energy found that the vertical integration of companies is blocking the development of an internal energy market and has proposed that legislation is needed for more effective unbundling. This view was endorsed by Member States at the March Energy Council. We strongly support the Commission's view and believe, like them and many Member States, that the complete separation of transmission network ownership from non-network activities is the best solution for both electricity and gas.

Is there agreement on the fundamental importance of a genuine single market to support a Common European strategy for energy?

  There has been long standing support from both Member States and the European Parliament for the completion of the internal energy market. It has been a major element in the Lisbon agenda and Heads of State recently confirmed their commitment to delivering a single market at the Spring European Council as part of an integrated Energy policy for Europe.

What are the implications for the single market of the Commission's commitments on climate change?

  The publication of the Stern Review recently outlined that the costs of action to mitigate dangerous climate change were consistent with continued growth provided the right policies were put in place and co-ordinated action was taken across countries. The EU's ambitious targets on climate change, agreed at the Spring Council, can be achieved through the use of well-designed and cost-effective policies, such as the EU Emissions Trading Scheme. As such a dynamic and flexible Single Market can play an important role in providing the opportunities and incentives for business to respond.

Should there be a single EU energy regulator?

  The current variations in national regulatory practice make the establishment of a single EU regulatory body impractical without significant changes of practice within Member States. The Government supports greater coordination of national energy regulators to improve cross-border cooperation and the removal of national governments from the operation of national regulators.

TELECOMMUNICATIONS

Is the EU telecommunications market genuinely cross-border at present?

  The current EU regulatory framework has increased competition and investment and has allowed cross-border markets to develop. Most of the problems encountered by UK businesses in other Member States, such as access to the incumbent's network, are to do with inconsistent implementation and application of the current rules across the EU, rather than the rules themselves or the respective roles of the Commission and national regulators.

Is the current EU regulatory framework for telecommunications sufficiently technology neutral?

  In most cases, yes. We support the Commission's proposals for market-led spectrum management and expect the revised legislation (following negotiations due to begin autumn 2007) to be updated to ensure the Directives that underpin the regulatory framework are technology neutral and future-proof.

Does this regulatory framework require modernisation?

  Robust implementation of the existing framework will help to remove national policies that adversely affect pan-EU services. Politically and financially independent national regulators, timely completion of market reviews and a strong European Regulators Group (willing and able to achieve harmonisation. where required, and spread best practice) are essential features of a well-functioning single market under the current framework. The UK believes the Commission's review of the Framework legislation should build on the strengths of the current regime (evolution), rather than a complete overhaul of the legislation and the respective roles/powers of the Commission and national regulators (revolution).

FINANCIAL SERVICES

What has been the impact of the implementation of the Financial Services Action Plan as a whole: and in particular the Markets in Financial Instruments Directive?

  The EU Financial Services Action Plan (FSAP) has been the legislative framework for developing the Single Market in financial services, and once fully implemented has the potential to provide significant benefits for the UK financial services sector. Overall, it is too early to give a definitive judgement on the success of the especially as some of the most significant measures have yet to be implemented in the UK, For example, the Markets in Financial Instruments Directive (MiFID) is not due for implementation until November 2007, and so it is too early to judge its overall impact. That said, we would hope that the FSAP as a whole, and MiFID in particular, would have a broad market opening and liberalising effect. Early signs are encouraging; the anticipated market opening that MiFID will deliver has, however, already resulted in the creation of new trading schemes such as Turquoise, Boat and Chi-X that should improve competition.

Do you support the Commission's Code of Conduct on Clearing and Settlement?

  We welcome the Commission's code of conduct. The Commission's decision to propose a market-based approach as an alternative to a Directive is a good example of better regulation working in practice.

28 June 2007