Progress | Centre-left Labour politics

Labour should champion an EU agenda for growth and innovation

One item that is unlikely to be top of David Cameron’s European Union reform agenda is the EU’s proposed capital markets union. Immigration, welfare and human rights appear to be dominating discussions as Cameron continues to meet with all 27 European leaders before the European council meeting at the end of June. Beyond its mundane title though, the CMU has the potential to transform the way that European businesses are funded, thereby supporting the creation of more high-quality jobs. This is the sort of pro-growth European reform that the United Kingdom, and Labour, should be championing.

The UK’s poor levels of productivity and exports are the defining challenges facing our economy, hitting people’s living standards. We need a more dynamic economy which supports the high-growth and innovative businesses that drive the bulk of job creation. And we need a more dynamic European economy too. Europe has far more stable firms that are not adding jobs, while the United States has far more firms that are growing.

As the report that we published for Policy Network this week found, despite there being more SME financing in Europe than the United States, this is not allocated to where it is needed most. Above all, Europe lacks equity financing for early-stage, risky businesses: the levels of Dragon’s-Den-style business angel and venture capital investment are respectively three and five times higher in the US.

Our interviews and analysis across six countries identified three key issues: most countries in Europe tax equity far more heavily than debt; the returns on venture capital in Europe have been close to zero for the last decade; and rigid insolvency legislation in some states prevents firms from restructuring. In 2009 the European economy lost around 1.7 million jobs due to insolvency.

The UK should be pushing for the European commission to drive three policies in particular to help build a deeper equity culture across Europe. First, tax incentives for business angel and venture capital investors – which have been a success in the UK – should be encouraged. These measures should be treated as structural reform and therefore not constitute a breach of the EU’s fiscal rules; and a bond guarantee programme should be considered to help member states fund the upfront cost.

Second, the European Investment Fund should start issuing long-term, low-cost loans to new ‘small business investment companies’. These loans would allow investors to provide a combination of debt and equity to firms, providing a more viable investment model – and as the US has shown this is possible at no cost to the taxpayer.

Third, minimum insolvency standards should be enforced across the EU with a directive if necessary. Many jurisdictions still do not allow debt restructurings, out-of-court settlements and the use of fast-track procedures. These procedures are crucial if businesses are to survive, and to give investors greater confidence to operate across borders.

Our review also highlighted numerous examples of what Europe is good at. From Germany’s system of chambers of commerce, to Turin’s innovation ecosystem, France’s credit mediation scheme, Poland’s education reforms, to the changes to Sweden’s pension system, Europe is a hotbed of policy innovation. The EU should do more to persuade member states to learn from each other.

Labour needs to be leading the charge on a positive UK vision for reform of the EU. A vision of a dynamic economy that is able to create jobs for the future. A dynamic European economy would have significant benefits for Britain, and must be made a top priority.


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Thomas Aubrey

is a senior adviser at Policy Network and chief executive and founder of Credit Capital Advisory

Renaud Thillaye

is deputy director of Policy Network

Alastair Reed

is a researcher at Policy Network


  • Thank you for the first contribution to a positive initiative by Labour on the EU. Where has it been for the last 15 years. Having failed to get the idea until now it looks very likely to me that the weight of inertia will kill off radical changes now and that is because the EU has no remit for the needs of the British economy. Why should it? It has too many challenges from the poor states in Europe. I am mystified by the notion that Labour should be pushing the Commission to do this or ‘European Committee a’ or ‘European Committee b’, to do something else. The European Commission is not there to prioritise British specific needs. We have a parliament, why no capacity for independent initiatives and take a lead where others will later need to follow. If the UK becomes tied to what others accept we are needlessly accepting other nations priorities – and helping no one Germany independently initiates where it economic needs arise. Why should the UK look to outsiders to deal with its specific priorities and needs

    We could have policy to develop banking for investment to suit the British needs. Why the assumption that UK economic needs have to match the others’ needs before activity occurs? Germany’s needs are different. Why tie UK initiatives to the EU? Do we have a lifetime to spare?

    Another example of where the UK’s advance is held by the slowest nation in the EU is skills. Both Conservative and Labour Parties have sought international/european training-subsidised skilled (and unskilled) labour to fill its vacancies – why? Why not at least pretend to be radical by introducing a skills-training levy – a serious one I mean. I know the historical, cheap, highly effective and efficient Industrial Training Boards look a little too Socialist for most Labour front-runners could stomach, so it could be dressed up to look Conservative. We could even try to shape modern apprenticeships to look like they were meeting essential skill gaps rather than responding to sensitivities on employment. I would suggest that we kill off Tristan Hunts new, but old tried, detached and academic views on what constitutes vocational education to help with payment.

    I am thankful for a good start to what I think is needed in a ‘Labour Campaign for an EU Alternative’. The desire to wait for someone else before acting feels a bit too sluggish to ever be meaningful. For those who think it is too un-comradely to compete with other EU nations you can just do the paperwork until their economic needs match ours and then claim what aliberating benefit the EU is.

  • Whatever arrangement with the EU has been renegotiated to the satisfaction of David Cameron will be horrendous from the point of view of British workers and the users of British public services.

    But then, the economic, social, cultural and political power of the British working class, whether broadly or narrowly defined, cannot exactly be said to have increased since 1973. Any more than Britain has fought no further wars since joining a body as successful as NATO or nuclear weapons when it comes to keeping the peace.

    We had full employment before we joined the EU. We have never had it since. No job in the real economy is dependent on our membership. Or were trade with, and travel to, the Continent unheard of, because impossible, before our accession to the EU?

    Not for nothing did Margaret Thatcher support that accession, oppose withdrawal in the 1975 referendum, and go on, as Prime Minister, to sign an act of integration so large that it could never be equalled, a position from which she never wavered until the tragically public playing out of the early stages of her dementia. “No! No! No!” was not part of any planned speech.

    After all, which privatisation did the EU prevent? Which dock, factory, shipyard, steelworks or mine did it save? If we needed the EU for the employment law that, since we do not have it, the EU is obviously powerless to deliver, then there would be no point or purpose to the British Labour Movement.

    Far from preventing wars, the EU has done nothing to prevent numerous on the part of, at some point, most of its member-states, not least this member-state. It was a key player in, and it has been a major beneficiary of, the destruction of Yugoslavia, a process that events in Macedonia more than suggest is ongoing even after all these years.

    The EU is now a key player in, and it seeks to be a major beneficiary of, the war in Ukraine, which is the worst on the European Continent since 1945, and which is a direct consequence of the EU’s expansionist desire to prise a vital buffer state out of neutrality and into the NATO from which the EU is practically indistinguishable.

  • In anticipation of Cameron’s Single European Act on speed, all of the candidates for Labour’s Leader and Deputy Leader need to demand immediate legislation.

    First, pre-emptively disapplying in the United Kingdom any Transatlantic Trade and Investment Partnership. Britain can and should strangle the wretched thing in its cradle. Secondly, restoring the supremacy of United Kingdom over European Union law, using that provision to repatriate industrial and regional policy as Labour has advocated for some time, using it to repatriate agricultural policy, and using it to restore the United Kingdom’s historic fishing rights of 200 miles or to the median line.

    Thirdly, requiring that, in order to have any effect in this country, all EU legislation be enacted by both Houses of Parliament as if it had originated in one or the other of them. Fourthly, requiring that British Ministers adopt the show-stopping Empty Chair Policy until such time as the Council of Ministers meets in public and publishes an Official Report akin to Hansard.

    Fifthly, disapplying in the United Kingdom any ruling of the European Court of Justice or of the European Court of Human Rights unless confirmed by a resolution of the House of Commons, the High Court of Parliament. That would also deal with whatever the problem was supposed to be with the Human Rights Act.

    Sixthly, disapplying in the United Kingdom anything passed by the European Parliament but not by the majority of those MEPs who had been certified as politically acceptable by one or more seat-taking members of the House of Commons. Thus, we should no longer be subject to the legislative will of Stalinists and Trotskyists, of neo-Fascists and neo-Nazis, of members of Eastern Europe’s kleptomaniac nomenklatura, of people who believed the Provisional Army Council to be the sovereign body throughout Ireland, and of Dutch ultra-Calvinists who would not have women candidates.

    And seventhly, giving effect to the express will of the House of Commons, for which every Labour MP voted, that the British contribution to the EU Budget be reduced in real terms.

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