Paul Yowell: EU Act 2011: Law and Politics

The European Union Act 2011, which received royal assent in July of last year, could have important implications for several aspects of the UK constitution, including the UK’s relationship with the EU, the understanding of parliamentary sovereignty, the question of ‘manner and form’ restraints on Parliament, and the role of public referenda in the UK. The Act and some of these questions were discussed on this site recently by Mike Gordon. My post will not address parliamentary sovereignty but will focus on precisely what triggers the Act’s requirement that certain changes to EU treaties must be approved by referendum in order to be ratified, and speculate on whether the Act played a role in David Cameron’s decision to veto proposed treaty changes at the EU summit in December.

The main purpose of the EU Act 2011 is to place a ‘referendum lock’ on any further transfers of power from the UK to the European Union. This is how the Conservative Party manifesto in the last election described the proposal that led to the Act. The Liberal Democrats acquiesced to this pledge in the coalition agreement, which promised ‘no further transfer of sovereignty or powers over the course of the next Parliament’, and to ‘amend the 1972 European Communities Act so that any proposed future treaty that transferred areas of power, or competences, would be subject to a referendum on that treaty’. The EU Act 2011, however, is worded not in terms of transfers of power but in terms of extension of the competence or objectives of the European Union and decrease in the voting power of the UK in certain situations, with an exception for treaty changes that do not apply to the UK. Section 2 of the Act provides generally that treaties amending or replacing existing EU treaties may not be ratified unless the public approves proposed changes in a referendum, and section 3 applies the same rule to ministerial approval under the simplified treaty revision procedure under TEU art. 48(6).  Section 4 describes several situations which trigger the referendum requirements of sections 2 and 3, including:

(a) the extension of the objectives of the EU as set out in Article 3 of TEU;

(b) the conferring on the EU of a new exclusive competence;

(c) the extension of an exclusive competence of the EU;

(d) the conferring on the EU of a new competence shared with the member States;

(e) the extension of any competence of the EU that is shared with the member States;

(f)  the extension of the competence of the EU in relation to—(i) the co-ordination of economic and employment policies, or (ii) common foreign and security policy;

(g) the conferring on the EU of a new competence to carry out actions to support, co-ordinate or supplement the actions of member States;

(h) the extension of a supporting, co-ordinating or supplementing competence of the EU;

(i)  the conferring on an EU institution or body of power to impose a requirement or obligation on the United Kingdom, or the removal of any limitation on any such power of an EU institution or body;

(j)  the conferring on an EU institution or body of new or extended power to impose sanctions on the United Kingdom;

(k) any amendment of a provision listed in Schedule 1 that removes a requirement that anything should be done unanimously, by consensus or by common accord …

Describing the Act as applying to transfer of power suggests a simultaneous increase of EU power and removal of UK power; but according to the terms of the Act itself, almost any extension of EU competence, including in areas of competence shared with the member states, is caught by section 4. The areas of shared competence include the internal market, economic and social cohesion, consumer protection, the environment, and other areas listed in TFEU art. 4.

Section 4(4) of the EU Act 2011 provides further that a treaty change ‘does not fall within this section merely because it involves one or more of the following—(a) the codification of practice under TEU or TFEU in relation to the previous exercise of an existing competence; (b) the making of any provision that applies only to member States other than the United Kingdom; (c) in the case of a treaty, the accession of a new member State’ (italics added). If any of the three conditions obtain, the treaty change is not sufficient to trigger the referendum requirement; however, a referendum would not necessarily be excluded in such a situation. Thus the government is not obliged to hold a referendum if it agrees to a change to the EU treaties that does not apply to the UK.

At the summit to deal with the crisis in the eurozone that was held December 7th-9th, EU leaders agreed to proposals to amend the treaties to adopt new rules and procedures promoting fiscal stability and discipline. These included more stringent limitations on sovereign debt and enhanced oversight and enforcement mechanisms, which give greater control over national budgets to Brussels; the fiscal discipline rules are obligatory for eurozone members and optional for other member states. But fiscal discipline is not all that was on the table. At the start of the summit on 7 December, Angela Merkel and Nicholas Sarkozy sent a joint letter to Herman von Rompuy, President of the European Council, outlining a plan that included new financial regulation and taxes. Calling for a ‘new common legal framework’ they stated:

‘We need to foster growth through greater competitiveness as well as greater convergence of economic policies at least amongst Euro Area Member States. To these aims, building on Article 136 and/or on enhanced cooperation, a new common legal framework, fully consistent with the internal market, should be established to allow for faster progress in specific areas such as:

• Financial regulation;

• Labor markets;

• Convergence and harmonization of corporate tax base and creation of a financial transaction tax …’

The agreement that EU leaders signed on 9 December did not explicitly mention regulation or taxes but referred to ‘enhanced governance’ to foster a ‘deeper integration in the internal market’:

‘The stability and integrity of the Economic and Monetary Union and of the European Union as a whole require the swift and vigorous implementation of the measures already agreed as well as further qualitative moves towards a genuine ‘fiscal stability union’ in the euro area. Alongside the single currency, a strong economic pillar is indispensable. It will rest on an enhanced governance to foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion.’

It was reported that David Cameron’s chief demand at the summit negotiations was to protect Britain from new financial regulations and restore certain points of regulation to a unanimous voting rule. Under current rules, the financial transaction tax championed by Merkel and Sarkozy is subject to a unanimity rule, giving the UK a veto. Regulation, however, comes under the rule of qualified majority voting.

When his demand was not met, Cameron refused to agree to the treaties, exercising an effective veto, meaning that the proposed changes on fiscal discipline would have to proceed, at least for now, as an inter-governmental agreement rather than as part of the EU treaties. Eurosceptics hailed the veto as bold and prudent and rewarded Cameron with a bump in the polls. (The British public is in a sceptical mood; a recent YouGov survey found that 43% would vote to leave the EU and 36% would vote to stay.) Critics claimed that British diplomatic efforts at the summit lacked preparation and skill, and that Cameron’s veto will prove counter-productive. Under current voting rules Britain has had strong clout and has generally been able to prevent new regulations it opposed. Cameron’s move may usher in a new era in which Britain finds itself in a weakened bargaining position or frozen out of key discussions, as the result of anger at the veto of the treaty in a time of crisis. Sarkozy claimed that Cameron was trying to ‘create an offshore zone in the heart of Europe’. The Economist is broadly sympathetic with Cameron’s aim; a leader titled ‘Save the City’ and accompanying article argue that the greatest threat the City faces is from new regulation (both from Brussels and homegrown). But the magazine concludes that because of the self-defeating nature of the British veto, Cameron’s aim was not so much to protect the City as ‘to avoid having to sell a more integrated Europe to Tory Eurosceptics’.

I would like to venture a somewhat different explanation of Cameron’s veto that figures in the dynamics of the EU Act 2011. Let us suppose that The Economist’s diagnosis is correct: the best way to safeguard British interests with regard to regulation would have been to maintain its clout at the negotiating table; hence it would have been in Britain’s national interest to sign the treaty agreement at the summit’s end, and to reserve that possibility as part of a sound negotiating strategy. The treaty change may well have been a hard sell to Tory Eursceptics; 81 of them rebelled in a backbench motion in December calling for a referendum on Britain’s position in the EU.  But because of the EU Act 2011, Cameron may have been faced not only with persuading his backbench but with the prospect of a mandatory referendum. While the treaty changes regarding fiscal discipline did not apply to Britain, signing the summit agreement would have set in motion a process that could result in extension of EU regulatory power as called for by Merkel and Sarkozy. The documents reflecting Britain’s position at the summit are not public, so we do not know precisely what aspects of financial regulation Cameron was seeking to safeguard with his demand for unanimous voting, or exactly how he proposed to do so. But it seems possible that his demands would have been formulated with a view to avoid triggering the referendum requirement in the EU Act 2011. Such a referendum might well have ended in an embarrassing defeat for Cameron, given the public’s eurosceptic mood. Perhaps Cameron vetoed the treaty in part to avoid the possibility of a referendum under the Act.

Foreign Secretary William Hague is well-acquainted with the details of the Act. He proposed the idea behind it at the Conservative Party conference in 2010, and, when addressing the Commons at the time of the Eurosceptic rebellion, relied on the Act as the centerpiece in his argument against having a referendum on leaving the EU altogether. We can assume that Cameron’s team at the EU summit was monitoring negotiations and proposals for their potential to trigger the referendum requirement of the Act.

Whatever the accuracy of the above speculations about British national interests and Cameron’s motive for the veto, they serve to highlight a potential negative consequence of the EU Act 2011 raised during scrutiny by the House of Lords. Several Lords pointed out that the bill would tie British hands in treaty negotiations. The Act is very broadly phrased to catch virtually any extension of EU competence or objectives unless it applies only to states other than the UK. But the EU treaties already define EU competence and objectives in broad terms, and rely mainly on the principle of subsidiarity in TEU art. 5 to protect member state sovereignty. Given the complex institutional structure of the EU, and the detailed scheme of exclusive and shared competences, it might be in the British interest at a summit to agree to a treaty that nominally extends EU competence in a certain area but also includes restraints or institutional mechanisms that safeguard British concerns. The EU Act 2011, for better or worse, limits the power of leaders and diplomats in such a situation to make decisions and the promises that may be needed to secure concessions, and delegates authority to the people acting through a referendum.

    Paul Yowell is a Lecturer in Law at New College, Oxford.