Time to stand up for our national interest, and not be a slave to EU procurement nonsense

Britain shouldn't be hamstrung by rules from Brussels which make no sense, writes Michael Dugher.

The Government recently confirmed that the German conglomerate, Siemens, has won the £1.6bn contract to build rolling stock for the Thameslink line.  This decision is a huge blow to Bombardier, the Derby-based train manufacturer, and a stark example of the Government’s approach to British industry.  Ministers have defended the appalling decision by citing EU procurement rules, but it is inconceivable that any other EU country, bound by the same rules, would have made the same decision 

This month also saw the first meeting of Labour’s new cross-departmental procurement group, made up of a frontbench shadow minister from every shadow team.  The quality of procurement practise across the public sector varies markedly and part of the problem is that there is still a fragmented approach with Whitehall operating in silos.   The aim of the new group is to address this, as well as to develop new thinking to feed into our ongoing policy reviews.  One of the major issues we will be looking at is the need for more flexibility in relation to EU procurement rules. 

The problems around EU procurement are complex and far from new.  Initially, EU Directives were designed to ensure transparency and non-discrimination, leading to outcomes which represent good value for money.  But there has been a growing sense amongst British businesses that when it comes to EU procurement rules, the current system simply doesn’t function fairly and that our continental neighbours (and competitors) manage to support their domestic industry in a way that simply doesn’t happen enough in the UK.  This has got to be bad for the British economy.    

In 2004, Gordon Brown commissioned Alan Wood to look into this area and he produced a report which showed just how one-sided the procurement rules have been operated.  Many British business leaders quoted in the report spoke of an uneven playing field and how other European countries were able to fit the specifications of a contract to give a good chance to domestic suppliers.  This explains, for example, why all trains in Germany are built by Siemens.

In countries like Germany and (above all) France, contracts are often sliced up into parts so that each slice falls below the minimum required for compulsory international tendering.   There is also often an important specification that states that as well as considering price, the final choice has to represent “best value”, a concept which forces Ministers to take into consideration wider economic, environmental and strategic industrial factors. 

The result is that the single market in procurement is often a bit of a chimera, with countries tending to support home industries and domestic taxpayers as much as they can.

The obvious question then is this: why have we not been acting in the same way in the UK?  In Britain, it seems, many of the problems have stemmed from what might be described as Whitehall's rather ambivalent attitude towards British industry.  For years, civil servants in Whitehall have too often used EU procurement rules as a basis - an excuse even - to make recommendations to Ministers that simply do not do the right thing by the UK.

As the procurement expert Professor Dermot Cahill said when giving evidence to the new shadow procurement group this month, purchasers often hide behind EU law as “the problem”.  He added that to start with only 20 per cent of public procurement tenders are large enough to fall under the EU rule requirements, and that even large contracts are more flexible than they are sometimes made out to be.   

Unfortunately, Ministers in this Government appear either to share the indifference to British industry or are simply content to sign off advice without properly challenging their officials.  The Government’s handling of the Thameslink contract is an example of this attitude.  And another scandalous recent example was with the London Olympics – where out of the 2,717 cars procured to drive officials and athletes around during the event, only a 360 were manufactured in the UK.

So a complete shift in mind-set is needed in Whitehall.  Public procurement is an important driver for economic growth and employment and its creative use can help maximise the impact of public spending.  As Ed Balls has said recently, Labour could be set to inherit a very difficult financial situation in 2015, which will require us to govern in a different way with much less money around.  So how we use procurement to best effect and best value will become increasingly important.   

Ed Miliband and Chuka Umunna have both already spoken about using the power of procurement to support British innovation and jobs, calling for large suppliers to offer apprenticeship opportunities on public contracts as a way of sharing the proceeds of growth.  And over the last few years, the Labour Government in Wales has been successfully moving towards this wider approach.  For example, Dermot Cahill said that the introduction of “community benefit” criteria in Wales has meant that there is public value left behind when procurement contracts finish.     

This approach is certainly not about being anti-open competition.  It is about being smarter.  It is about considering what is best for the UK, in a wider economic context, when deciding the criteria for major public procurement contracts and when spending British tax-payers money. 

And despite perceived wisdom, none of this is incompatible with EU law.  Of course, there are technical revisions to EU procurement rules that will help remove barriers for British businesses trying to access the European market - and this will be part of Labour’s determination to drive reform in the EU so it once again works in our national interest.  But crucially, we need to look at why we are not showing the same ingenuity and flexibility that other EU states currently do.

The irony is that by standing up more for our national interest, and refusing to be a slave to EU procurement nonsense, our approach might actually make us more European in that we would be acting in a way that is more like our European counterparts.  The consequence of this would be Britain left better off.        

Michael Dugher MP is Shadow Minister without Portfolio and Vice-Chair of the Labour party. He jointly chairs, together with Chuka Umunna, Labour's frontbench procurement group

Photograph: Getty Images

Michael Dugher is Labour MP for Barnsley East and the former Shadow Secretary of State for Culture, Media and Sport.

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Leader: The unresolved Eurozone crisis

The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving.

The eurozone crisis was never resolved. It was merely conveniently forgotten. The vote for Brexit, the terrible war in Syria and Donald Trump’s election as US president all distracted from the single currency’s woes. Yet its contradictions endure, a permanent threat to continental European stability and the future cohesion of the European Union.

The resignation of the Italian prime minister Matteo Renzi, following defeat in a constitutional referendum on 4 December, was the moment at which some believed that Europe would be overwhelmed. Among the champions of the No campaign were the anti-euro Five Star Movement (which has led in some recent opinion polls) and the separatist Lega Nord. Opponents of the EU, such as Nigel Farage, hailed the result as a rejection of the single currency.

An Italian exit, if not unthinkable, is far from inevitable, however. The No campaign comprised not only Eurosceptics but pro-Europeans such as the former prime minister Mario Monti and members of Mr Renzi’s liberal-centrist Democratic Party. Few voters treated the referendum as a judgement on the monetary union.

To achieve withdrawal from the euro, the populist Five Star Movement would need first to form a government (no easy task under Italy’s complex multiparty system), then amend the constitution to allow a public vote on Italy’s membership of the currency. Opinion polls continue to show a majority opposed to the return of the lira.

But Europe faces far more immediate dangers. Italy’s fragile banking system has been imperilled by the referendum result and the accompanying fall in investor confidence. In the absence of state aid, the Banca Monte dei Paschi di Siena, the world’s oldest bank, could soon face ruin. Italy’s national debt stands at 132 per cent of GDP, severely limiting its firepower, and its financial sector has amassed $360bn of bad loans. The risk is of a new financial crisis that spreads across the eurozone.

EU leaders’ record to date does not encourage optimism. Seven years after the Greek crisis began, the German government is continuing to advocate the failed path of austerity. On 4 December, Germany’s finance minister, Wolfgang Schäuble, declared that Greece must choose between unpopular “structural reforms” (a euphemism for austerity) or withdrawal from the euro. He insisted that debt relief “would not help” the immiserated country.

Yet the argument that austerity is unsustainable is now heard far beyond the Syriza government. The International Monetary Fund is among those that have demanded “unconditional” debt relief. Under the current bailout terms, Greece’s interest payments on its debt (roughly €330bn) will continually rise, consuming 60 per cent of its budget by 2060. The IMF has rightly proposed an extended repayment period and a fixed interest rate of 1.5 per cent. Faced with German intransigence, it is refusing to provide further funding.

Ever since the European Central Bank president, Mario Draghi, declared in 2012 that he was prepared to do “whatever it takes” to preserve the single currency, EU member states have relied on monetary policy to contain the crisis. This complacent approach could unravel. From the euro’s inception, economists have warned of the dangers of a monetary union that is unmatched by fiscal and political union. The UK, partly for these reasons, wisely rejected membership, but other states have been condemned to stagnation. As Felix Martin writes on page 15, “Italy today is worse off than it was not just in 2007, but in 1997. National output per head has stagnated for 20 years – an astonishing . . . statistic.”

Germany’s refusal to support demand (having benefited from a fixed exchange rate) undermined the principles of European solidarity and shared prosperity. German unemployment has fallen to 4.1 per cent, the lowest level since 1981, but joblessness is at 23.4 per cent in Greece, 19 per cent in Spain and 11.6 per cent in Italy. The youngest have suffered most. Youth unemployment is 46.5 per cent in Greece, 42.6 per cent in Spain and 36.4 per cent in Italy. No social model should tolerate such waste.

“If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has often asserted. Yet it does not follow that Europe will succeed if the euro survives. The continent that once aspired to be a rival superpower to the US is now a byword for decline, and ethnic nationalism and right-wing populism are thriving. In these circumstances, the surprise has been not voters’ intemperance, but their patience.

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump