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Neelie Kroes

Member of the European Commission in charge of Competition Policy

Better Regulation of Professional Services

UK Presidency Seminar
Brussels, 21st November 2005


Let me start by saying how delighted I am to be here, and to thank the UK Presidency and in particular the team from the UK Department of Trade and Industry for organising today’s event.

It is good to see national regulatory authorities, competition authorities, and the professions themselves represented here. Our shared purpose is to review what has been achieved over the past 18 months in reforming regulation in the professional services sector.

Today is an opportunity to build relationships, share experience and showcase the good work that is underway in Member States. We can all learn and benefit from others’ experience. I hope that today’s event will not be the last, but rather set a pattern for the future.

Better regulation of professional services - a fitting title

The title for this event could not be more fitting. It captures well the essence of what the Commission is trying to achieve in this sector.

Better regulation features as a cornerstone of the reinvigorated Lisbon Strategy. Regulation should support European competitiveness rather than hinder it, and foster growth and jobs. This means regulation that is proportionate, grounded on clear evidence, and where the benefits of the rules clearly justify the cost. The better regulation agenda therefore rightly includes both improving new legislation and simplifying existing regulation too, as well as reviewing or abolishing obsolete rules.

The Commission is working closely with Member States to meet these objectives. The UK Presidency has given an important boost to this work. In the competition field we are doing our bit. We have introduced competition screening. This will feature in the first session of today’s conference. We have also launched two sector inquiries at European level in the energy and financial services sectors. These are proactive investigations into the functioning of these markets to see whether they are delivering well–priced quality products and services to end-users, and, where they are not, to identify the causes. Causes could include private activities by economic operators, as well as poor quality or ill-focussed regulation at either EU or national level. We will share preliminary results of the inquiries in the coming months, and invite stakeholders to react.

That brings me on to the Commission’s work in professional services.

Commission’s work in the field of professional services

This work is, to a large extent, similar to a sector inquiry. We set out to see if the current regulatory mix was the most efficient or whether regulation could be better, more adapted to the modern world and spurring economic growth rather than hindering it. A key concern was whether the current mix of professional regulations and rules directly or indirectly restricts competition in the market to the detriment of consumers.

Our research on the nature and impact of existing regulation concluded that the sector was characterised by restrictive rules that were unnecessarily hindering competition. Examples include outdated price fixing regulation, bans on advertising, and severe restrictions on business structure and inter-professional co-operation. These are highly restrictive rules which distort competition and would be considered unacceptable in most spheres of economic activity.

Our research showed that more competition in this sector would be good for the EU economy, business and consumers. It would promote cost-efficiency, lower prices, better quality and new and innovative services. And the availability of better and more varied services would increase demand, which in turn would have a positive impact on job creation in this high-skill, high-wage sector.

Economic importance of professional services

Just how big the potential economic gains are from promoting greater competition in this field is difficult to quantify. But they could be significant.

Figures from Eurostat[1] for 2001 show that ‘business services’ – a category which includes professional and computer services - generated approximately 8% of total GDP in the EU15. Approximately one third of this can be attributed to professional services.

Ireland alone reports that in 2001 expenditure on legal services was over €1 billion, and in the UK expenditure in 2003 on legal activities had reached £19 billion – a 60% increase from 1995.

In employment terms, the 2004 Eurostat Labour Force Survey shows that ‘business services’ provided 6.4% of total employment in the EU economy.

These figures are impressive. To put them in perspective, figures show that in 2001 the turnover share of ‘business services’ was greater than that recorded in industry and construction in most EU countries.

Commission’s 2004 and 2005 reports on competition in professional services

The findings of the Commission’s research were set out in the Commission’s first Report on Competition in Professional Services, published in February 2004.

Our second report, published in September 2005, gives an overview of progress during 2004/2005 in reforming regulation in this sector.

Our key message in these reports is the need for better regulation. Regulation that will promote competition and lead to higher quality services and more choice for consumers and users. But we are not advocating complete de-regulation. I emphasise this because some regulation in this sector is essential to protect user interests and ensure good governance of the professions.

So our focus is on asking Member States to review existing regulation working closely with all stakeholders to see how it can be modernised. Regulation in this sector is developed and impacts in the first place at national level, and our approach respects this in line with the subsidiarity principle.

We propose that a proportionality test should be used to assess to what extent existing restrictive professional regulations and rules truly serve the public interest and can be objectively justified.

In a nutshell this involves checking whether a regulation:

  • has a clearly defined public interest objective; and
  • is the method least restrictive of competition to achieve that desired objective.

Where it does not, that regulation or rule should be eliminated or reshaped. These principles should apply both to State rules and self-regulation by professional bodies.

To illustrate the proportionality principle in practice, take the area of access to justice.

We live in a Union which places the rule of law and effective protection of fundamental rights at its heart. There is a clear public interest objective to ensure access to sound legal advice and representation.

This means high standard legal services, provided by properly qualified independent practitioners, and readily accessible to everyone.

So there may be a need to regulate entry requirements and standards of behaviour within the profession.

I begin to have difficulties though when excessive obstacles or entry requirements are placed on entry to the legal profession, which serve to limit supply and drive up prices, and which cannot be justified as being in the public interest. For similar reasons the Commission is also sceptical of the need for territorial or quantitative restrictions which partition a market.

Poland provides an example of where excessive qualitative entry requirements in the legal profession have had a negative impact on consumers. Increases in legal work have far outpaced the growth in advocate numbers. It is widely contended that this has meant consumers choosing to go without professional legal advice and representation, probably because of higher prices and the difficulty of accessing services.

Poland has recognised and recently acted on this. Changes have been made to promote greater access to the legal profession. The creation of a ‘routine’ legal services sector has also been provided for by removing the exclusive right of legal advisers and advocates to provide certain types of legal advice and services.

I also have difficulty seeing how things like price fixing – in the form of fee scales – and advertising bans can be objectively justified. There may be a need for some limited and carefully targeted price regulation to protect access for the lower paid, for example, but surely not for all consumers or business users. Most are likely to be better off with a number of offers from different service-providers to compare and choose from. Bans on advertising are also difficult to justify. Advertising provides a means by which users can identify those services that best suit their needs and means.

Furthermore, the public interest is dynamic and changes over time as markets and the economy evolve, and consumers become more educated and empowered. So should the way services are delivered and regulated.

Take the area of conveyancing, or property transfer. This is a field of activity that remains reserved in many Member States to notaries and lawyers. This monopoly is granted historically because of the need to file documents in public registries and authenticate them. But things have moved on considerably in this field and it may be time to revisit the area with a view to opening it up to greater competition.

Technology and public land registry systems have transformed the way property transfer now takes place. In some countries these systems are widely accessible simply at the press of a button. This is making their traditional role as depositories of deeds redundant, and reduces the demand for transfer deeds designed to guarantee property rights. Thus it might be argued that the role of notaries and lawyers in this area should be rethought, especially for standard sale and transfer contracts.

I am a committed European, and one of the tremendous benefits of being in the EU is being able to look around and to learn from each other. We can help each other find the best way to safeguard the public interest objectives that we all want, while achieving the high quality and low prices that consumers deserve.

Progress made during 2004/2005

Finally I’d like to say a few words about the Commission’s progress report.

Our starting point is to compare Member States’ reported reform activity over the past 18 months against their levels of existing regulation. This is important since Member States are all starting at different points on the regulatory scale; some have relatively low levels of regulation, while in others the professions are more heavily regulated.

The report finds a mixed picture in terms of reform activity. A handful of countries are making good progress while in others the reform process has yet to get started.

What is particularly striking is that many of those countries with the highest levels of existing regulation fall into the category of doing very little, if anything, in the last 18 months. This is very disappointing. Member States have committed themselves to reforming their economic structures as part of the relaunched Lisbon Strategy. Reform of regulation in the professional services sector is an essential part of this.

Progress appears to be hampered by several factors, including a lack of national political support and reticence from the professions themselves. Few appear really ready to look at alternatives - to think outside the box. That’s why today’s event is so valuable.

What next?

For its part the Commission remains committed to wide scale reform that is in the consumer interest, and will continue to work towards this goal. It is encouraging Member States to build reform of the professions into their National Reform Programmes for implementing the Lisbon Agenda to give the project clear national political backing.

We also recognise that change will be gradual and incremental, and requires long-term commitment and support. Events like this give cause for optimism and show that the case for change is being recognised across Europe.

I will now hand over to Baroness Ashton and look forward to hearing what she has to say about the reform of UK legal services. I wish you a successful day.

Thank you for your attention.

[1] Source: Eurostat, ‘Developments for turnover and employment indices for services during the third quarter of 2004’, Statistics in focus 11/2005. Data refers to the following 14 countries: BE, DK, DE, ES, FR, IE, IT, LU, NL, AT, PT, FI, SE and UK.

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