James Forsyth James Forsyth

Politics: ‘Best in Europe’ is no longer good enough

If there’s one phrase that infuriates Tory radicals more than any other, it’s ‘We’re the best in Europe at ...’.

issue 02 July 2011

If there’s one phrase that infuriates Tory radicals more than any other, it’s ‘We’re the best in Europe at …’.

If there’s one phrase that infuriates Tory radicals more than any other, it’s ‘We’re the best in Europe at …’. The words are used among the bureaucratic establishment as an excuse for accepting the status quo. The logic is that as long as Britain is the best in Europe, then all is well. But this is emphatically not the case. Europe is a continent in decline.

According to work by the Prime Minister’s own office, it is probable that Europe will go from having four of the ten largest economies in the world today to none by the second half of this century. So if this country is to prosper in the years to come, it needs to think about how to compete with China and India, not France and Italy. Being the best in Europe will soon be the economic equivalent of being the tallest mountain in Holland.

The European frame of reference is also threatening the recovery. Thanks to the European Union’s Temporary and Agency Work Directive, by December of this year British businesses will have to give temporary and agency workers the same rights as regular employees when it comes to pay, holidays, sick pay and parental leave for mothers. This will be bad for business. When Tony Blair was Prime Minister, he was so concerned about its effect that he spent huge amounts of diplomatic capital blocking it. But the Brown government, under union pressure, signed up to the directive.

The coalition is now, sadly, preparing to implement this EU directive without any fight at all. Indeed, this Conservative-led government is making a habit of bringing into force Labour’s worst laws, such as this and the equalities act.

There are a growing number of Tories who think that, with the economy in choppy waters, the coalition should either repeal this EU directive or suspend it. Philip Hammond, the Transport Secretary and perhaps the most pro-business voice in the Cabinet, is said to be a particularly vehement opponent of these regulations. Hammond’s worry is that the legislations will wallop the construction sector, which is vital to any recovery.

Hammond, alas, has little support. Britain’s new ambassador to the EU, Jon Cunliffe, for all his reputation as a tough negotiator, seems to have gone native almost instantly and is reluctant to think about how to get round the new regulations.

The government machine maintains that there’s no cause for alarm. Even after this directive is implemented, Britain will still have — yes, you’ve guessed it — one of the most flexible labour markets in Europe.

Many ministers acknowledge that the directive will hurt economic growth, though they add that now is not the time to have an argument about it given that the government is already at war with the unions over public sector pensions. Others say that business, not government, must lead the fight against it. The Chancellor himself has repeatedly urged business leaders to speak out more against the rules and restrictions that are impeding the recovery. But at some point the coalition will need to deal with such job-destroying regulations.

This directive is not the only example of the European Union subverting the government’s growth agenda. I understand that EU rules on state aid are neutering the impact of enterprise zones, the coalition’s attempt to stimulate job creation in depressed areas of the country. European laws mean that the maximum tax advantage a business can gain in a year from being in one of these zones is a paltry £55,000.

An increasing number of people in government are being driven to distraction by these EU obstacles. Even the Liberal Democrats in the coalition have taken to moaning about how much extra work Brussels imposes on them. But it is the Tory radicals who are most infuriated. Both Oliver Letwin, the Prime Minister’s policy point man, and Steve Hilton, Cameron’s longest-standing political ally, have been known to end meetings by saying, ‘well, the only solution is to leave the EU.’ At least two Cabinet ministers share their view.

It’s not just the Tories on the Treasury bench who are becoming more Eurosceptic. One senior backbencher tells me that he expects a sizeable number of his fellow Tory MPs to vote for Ukip at the European elections in 2012. Among the new intake of Tory MPs, who make up nearly half the parliamentary party, it is accepted that anyone who wants to be elected Tory leader will have to promise to renegotiate Britain’s membership of the European Union and put the result to a referendum.

The downsides of EU membership have been made worse for Britain by this country’s ineffectual approach to dealing with the Brussels bureaucracy. One minister asked Kim Darroch, the UK’s ambassador to the EU, who is soon to become the PM’s national security adviser, when he should object to harmful EU policies. Darroch replied that it was best to do so late in the day. That way the intervention would carry the most weight. But after the minister went around Brussels and talked to figures at the Commission and to his opposite numbers, he found that the opposite was true. The reality was that you had to intervene early or bad ideas gained an unstoppable momentum.

This lack of basic diplomatic savvy can also be seen when the government tries to intervene at a European Union level. British efforts to implement in full the services directive, which would expand the single market to services, have yielded little success. But when Hilton suggested that Britain should campaign over the heads of national government in individual EU countries, to boost support for the directive, Foreign Office officials nearly fell off their chairs in shock.

To date, the extent of the government’s public diplomacy in support of this aim has been a glossy blue and yellow pamphlet called ‘Let’s Choose Growth’, which was sent out to all Britain’s EU embassies. It has yet to shift the argument.

If the coalition simply settles for trying to be the best in Europe, it will do little to halt Britain’s decline. What the Tory radicals have grasped is that the real challenge is not to manage decline better than the rest of Europe, but to equip Britain for an era in which economic power is moving east.

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