Baroness McIntosh of Pickering
To ask Her Majesty’s Government what assessment they have made of the impact on the economy of failure to agree a transition deal with the European Union.
Baroness Vere of Norbiton (Con)
My Lords, because there are so many wonderful speakers and so little time, I will start to look fierce when the clock says three.
Baroness McIntosh of Pickering (Con)
My Lords, I am delighted to have secured this timely debate, and I look forward to contributions from other noble Lords, especially the Minister. I refer to my interests in the register. I also worked as an EU lawyer in Brussels and advised MEPs before myself becoming an MEP. As an MP, I chaired the EFRA Committee, where some 80% of the work originated from EU directives and policies. I am also extremely proud to be half Danish, and I studied at the University of Aarhus.
Yorkshire and other parts of the UK have benefited hugely from our membership of the EU. Examples include current payments to farmers, both direct payments for producing farm products as well as stewardship schemes for environmental benefits, and financial services in Leeds, York and London have flourished within the single market. Leeds Bradford Airport and the Humber ports also provide a gateway to Europe for our goods, services and people to access the EU market.
Despite this, the electorate was split down the middle on the referendum, with only 37% voting for Brexit—52% of the 70% who voted. Many who voted remain stand prepared to change their minds once convinced that it really is in our interest to leave the European Union. Only 18 months are left to finalise the agreement. However, talks leading up to Brexit and the smooth transition afterwards appear to be stalling, which is why I have sought this debate today, to consider what the impact will be on the local and national economy in the event of there being no transition period or no deal being reached at all—and therefore no smooth transition and implementation period following our exit from the European Union.
As the UK applied to the EU Commission to set Article 50 in motion only in March, and negotiations started on 19 June, it would seem extremely precipitate to threaten to walk away after only four months of talks. The UK’s initial opening gambit was somewhat unfortunate in tone. However, the Florence speech which the Prime Minister gave last month represents an altogether more moderate and conciliatory approach. One way for the UK to capitalise on the new mood music and progress the talks would be for it to suggest hosting the talks, or one round of the talks, in London. That would be a positive idea and might be well received by our current partners.
The Prime Minister has said that on the day we leave the EU we will leave the single market and the customs union because we do not agree to the four pillars—the free movement of goods, services, capital and people—or the jurisdiction of the European Court of Justice. Yet she states that we want to carry on trading on the same terms. How can that happen? This smacks of having our cake and eating it, and we have been warned that that is specifically not on the table.
The Government have indicated that they are prepared to walk away from talks without a deal or a transition period, with the Treasury committed to spend £250 million on preparations for such a scenario. Yet transitional arrangements are essential to give businesses more time to plan and eventually to create a new relationship between the UK and the EU. When discussing transition, it is vital to consider the nature of this relationship and the effect it will have on industry.
In farming, there are three potential outcomes of a future trade relationship, none of which guarantees increased production levels or farm-gate prices, although each could threaten higher costs for consumers. Farming confidence, which is key to investment and productivity, has already fallen sharply in the last two years. Continued access to EU workers is essential for the agri-food and hospitality sectors, as it is for the care sector and the NHS. The pound’s fall in value has had a huge impact on the economy. Falling prices have boosted exports yet also increased the price of imported materials. Transitional arrangements would increase certainty for seasonal and other EU workers as well as for the value of the pound. Such arrangements would also allow the Government more time to implement a new domestic agricultural policy to support farming.
The Government, other than stating that the UK does not wish to remain subject to the jurisdiction of the European Court of Justice, have not explained what the dispute resolution mechanism will be for all those businesses that will still be buying and selling goods with our current EU partners. Such a scheme must be agreed by both sides in advance of any potential trade dispute.
There are many other outstanding issues. What will the customs and excise arrangements be? What will the costs be of putting those in place? How will we avoid the imposition of tariffs and quotas or, worse still, non-tariff barriers? Will financial services be allowed to passport their existing services within the EU? What is the status of the UK within the World Trade Organization? When will we become a member of that organisation in our own right as opposed to negotiating as part of the EU? How long will it take the UK to negotiate each free trade agreement with third countries, as they all lapse on the day that we leave? Is it the UK’s intention to apply under Article 127 to leave the European Economic Area? How costly will the physical checks and inspections at borders be for food, drink and other perishable goods and products?
To some, the US appears to be a preferred trading partner. However, the US rigorously adopts a protectionist approach. It does not, for example, allow foreign carriers to pick up and drop off on domestic air routes, and the aggressive approach that it recently demonstrated against Bombardier is an early indicator of future behaviour. The US and other non-EU countries such as New Zealand have objected to proposals agreed by the EU and the UK on how to split World Trade Organization tariffs on goods post Brexit. It is also a puzzle why the Department for International Trade has appointed a non-British person—a New Zealander—to lead negotiations for future trade deals when there are so many experienced British nationals to choose from in the EU Commission who are already negotiating at a very senior level and who would have seemed a far more appropriate appointment.
Another question is: what can we offer Commonwealth countries in a bilateral trade deal when they already enjoy preferential access to the European Union through ACP-EU membership, strongly encouraged by this country? One of its first achievements to be heralded was the setting of a fair and stable price for sugar.
Britain must demonstrate that it wants to make the best trade deals for Britain, not just any deal at any cost, which could have the potential to compromise our high animal health and welfare standards—for example, by accepting hormone-induced beef and chlorine-rinsed chicken from the United States. We should also be sensitive to the concerns of our near neighbours such as Ireland, where the common border is of concern. Effectively that becomes an external border, yet both sides of the border agree that they want no physical barriers. The EU has made this border issue, along with free movement and the rights of EU citizens, a top priority in these negotiations.
A particular sticking point has arisen over the third major EU priority—the budget: the amount that the UK will contribute to ongoing commitments. These include not just the salaries and pensions of British nationals—such as me—who are or have been officials of the EU institutions, but programmes such as Erasmus, which allows university students to study in other EU countries. There is also Horizon 2020, the EU research and innovation programme for companies, and EASA, the European air safety authority, which regulates licences for airlines.
The Government’s priority is to proceed rapidly to the next stage of negotiations, but what are the alternatives for our future relations? We are told that existing models, which are tried, tested and shown to work, are not suitable. Therefore, concluding a new arrangement by March 2019 is a tall order. It is important to recognise that there has never been a trade agreement for services anywhere in the world to date.
Britain is at a crossroads after taking the biggest single decision in over 40 years, with huge implications for the economy, and Parliament needs to have the best available information to hand. It is therefore appropriate and necessary that the impact assessments undertaken by the Government are published so that we can analyse the impact of Brexit on the economy.
Our European partners are bemused and confused. The messages coming from the Government are mixed, depending on the audience. The complexity of disentangling ourselves from administrative arrangements spanning 40 years is immense. Every sector is crying out for certainty. We owe to the people of Britain clarity, certainty and a smooth transition to future opportunities and challenges.
Baroness Kramer (LD)
My Lords, first, I congratulate the noble Baroness, Lady McIntosh, both on obtaining this debate and on her speech. With so few minutes in which to speak, I shall focus on just one or two areas that I think illustrate the underlying problem and the need to get absolute certainty, with a transition arrangement being agreed by both sides before the end of this year.
I work extensively with the financial services community, about a third of whose business is EU domestic only. It has as its priority a smooth arrangement for its clients, with no disruption in contracts or in the flow of work. That is its absolute priority, as indeed is appropriate. Because of the complexity of licensing, contract movements, moving people and operations and so on, these businesses have been working on contingency plans for transferring business out of the UK efficiently against a worst-case scenario of no deal and no transition for months. Those plans are now complete. At board meetings in October, November and December, different institutions will make the decision on whether to press the button so that implementation can begin in the new year. As I said, this is likely to be concentrated around business for clients based in the EU, but eventually it will bleed over into the global financial services, which are absolutely crucial to the ongoing future of London and of which about a third is domestic, a third global and a third EU regional. Therefore, the Government have to focus. We need absolute certainty for those institutions not to press that button in the next several weeks.
Frankly, however, it is not just in that arena that all these issues are critical. I was in Brussels for two days a couple of weeks ago and came away with the understanding that, if we do not wish to have clearance requirements at our ports for manufactured goods, we have to remain in “the” customs union, not in “a” customs union, otherwise WTO and treaty rules will require the establishment of borders and customs clearance arrangements. Noble Lords will know that many of our major manufacturers—those in the car industry and many others—work on a just-in-time basis. With some car manufacturers, the phone call goes over to the European factory at eight in the morning and goods need to be provided to go into the production line in the UK three hours later. For others, it is as much as six hours later, but that is about the outer limit of just-in-time arrangements, which will fail completely if any clearance process is in existence at the borders. I have listened to the head of the British International Freight Association. As this House will know, a two-minute delay will back lorries at Dover up to Ashford, and a six-minute delay will push them back to the M25. There are critical issues of this calibre all across which require a transitional arrangement, and it must be one with certainty—and soon.
Lord Kerr of Kinlochard (CB)
But, my Lords, that is not going to happen because a transition requires a defined destination. The Government still cannot agree among themselves the long-term relationship that they want with the European Union. In Florence the Prime Minister told us that it was not the Canadian model because that would be too restrictive, and it was not the Norwegian model because that would not respect our democratic control, but she did not say what it was going to be, and I fear that she will not do so today. However, the Government will have to define it before the 27 can negotiate on it, let alone agree to it, so that we can transition to it. With respect, the ball is still in our court.
I have some questions for the Government. First, when will they at last put forward a draft of the framework for the future relationship with the EU, which is required by Article 50?
Secondly, when the Prime Minister spoke in Florence of a transition agreement, she was actually describing a standstill agreement. She talked of our respecting all EU rules and regulations for two years after we leave the Council, Parliament, court and Commission, which make those rules. Even I could negotiate that. If I am the 27, what is not to like about having all my decisions respected by the British without having to put up with boring British negotiators like me? And they are ready for it. Their guidelines, agreed on 29 April—exactly one month after we rashly fired the trigger and chose to spend three months having an election—say that,
“a time-limited prolongation of Union acquis”,
is fine, provided that all,
“existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures”,
continue to apply. Do the Government accept that they would continue to apply? If so, will somebody please tell the Foreign Secretary, who is still out there cherry-picking with his mouth full of cake?
My last point is that business certainly requires a transition agreement—the noble Baroness, Lady Kramer, is absolutely right—but it is not going to get it because the Government cannot make up their mind about what we are transitioning to. A standstill agreement would be better than nothing for business, but let us not pretend that it avoids the cliff edge; it merely postpones it from 2019 to 2021. Even if by 2021 the Government have finally stopped negotiating with themselves and have decided on the long-term relationship that we want, there is no chance that a version acceptable to the 27 will have been agreed, translated into detailed treaty texts and ratified in all EU legislatures, including Wallonia, following all necessary referenda, including in the Netherlands. Canada took seven years.
Therefore, my third question to the Government is: what comes after the standstill period? Do we, after the standstill, get to the transition period? How long does this uncertainty last? And when will the Government drop the Panglossian pretence that it does not entail massive economic disruption?
Lord Bowness (Con)
My Lords, I thank my noble friend for asking this Question. The Government did work on the economic consequences of exiting the European Union, and that was published before the referendum. However, little good use was made of it in the campaign, the parties instead preferring exaggeration and rhetoric.
The question now is about no transition. “No transition” means either a deal that has been agreed by the end of March 2019, ready for immediate implementation—and there is no one who considers that possible—or we leave via the cliff edge like lemmings, save that lemmings appear to be agreed on their hopeless course of action, while in our case many will be carried over, dragged by the crowd against our wishes.
The Question refers to transition, but at present no deal also remains a possibility at the end of transition. It is therefore time to face reality and abandon that rhetoric. The leavers’ simplistic cry that we fall back on WTO rules must be exposed. They say that WTO rules govern the majority of trade with the rest of the world and that, therefore, it is no problem to apply the same system to goods to and from the European Union. The Freight Transport Association commented in the Sunday Times that the nature of much of our trade with the EU is physically different. Some 70% of it is by lorry, unlike from the rest of the world, which is in bulk, by container. Containers have time at sea to deal with customs formalities. The same considerations of speed do not apply to them. European Union trade consists of many and frequent loads, all of which require customs formalities, creating cost and delay, and not just regulation but infrastructure, too.
Concerns exist in many businesses and industries, and they are not agents of remain. These concerns include worries about rules of origin, the maintenance of existing regulatory regimes and agencies and the delay and cost if we become a third country. The Government therefore need to assess not merely “no transition”, but “no deal”. There has to be a transition to something, and what that is is not clear, if indeed anyone knows. Transition merely puts off the realities until later. It becomes clearer by the day that no dynamic, creative and unique economic partnership will give the UK arrangements better than we currently enjoy. Anything post exit will be a compromise.
If business and, therefore, the country is not to face economic problems—and the revised figures from the ONS last week suggest that the picture might not be as rosy as we hoped—surely we should think again about our rejection of continued membership of the single market and the customs union and give more consideration to EFTA and EEA-type arrangements. How much are we prepared to sacrifice to keep the commitment to reject any jurisdiction of the European Court of Justice, which colours our judgment and is having an effect on many issues, including citizens’ rights and the Irish border?
Parliament and people need an honest and comprehensive assessment of the cost of no deal, not just in terms of trade and tariffs, but all the additional costs to business, individuals and government.
Baroness Jones of Moulsecoomb (GP)
My Lords, I, too, thank the noble Baroness, Lady McIntosh, for bringing forward this debate, which is obviously very timely. I will mention two issues, both of which have been raised already, but about which I feel quite strongly.
The first is the impact assessments that the Government have had done. I am told that there are about 50 of these, and at the moment they are being kept secret. I simply cannot understand why that is acceptable: we live in a democracy and it is for this House and the other place to see, scrutinise and understand exactly what those options are. How can businesses prepare, how can anyone prepare and how can we call ourselves a democracy if we cannot discuss them? It is almost as if the Government are holding us to ransom, not allowing us to know what is actually incredibly important. This is probably the biggest thing that has happened to Britain since the war. We need to know, and those impact assessments really have to be published.
My second issue relates to the World Trade Organization. The Secretary of State for Exiting the European Union has said that the default position for leaving the EU without a trade agreement would be to trade on most favoured nation status under World Trade Organization arrangements. Again, this is something that absolutely cannot go unscrutinised. The WTO is undemocratic and places big restrictions on what countries are allowed to do. It is designed to force through free trade at the expense of local communities and local production. It also has a dispute settlement body whose decisions are binding on all members. A country that loses a dispute must change its policies to comply with the body or face compensation and retaliatory sanctions.
David Allen Green, a law and policy commentator at the Financial Times, has said that since the WTO operates on a consensus decision-making system, the UK will be,
“at the mercy of countries playing politics with ulterior motives, say by Argentina over the Falklands or by Spain over Gibraltar”.
He went on to say that,
“the WTO was another ironic example of a process supposedly about ‘taking back control’ handing real power of the UK’s post-Brexit fate to the whims of outside powers”.
There will, of course, be tariffs; there will be big impacts on the services that we export, such as professional legal services and management consulting. Our European Union Committee has said that, in a no-deal situation, many professional services firms would either relocate to the EU or move resources to partner firms in order to continue to trade on preferential terms.
In spite of the fact that I voted to leave—and I still feel very strongly that that was the right decision—I also feel that we cannot do it in this way. We have a Cabinet supposedly ignoring all concept of group or ministerial responsibility. It is not for me, from an unwhipped party, to lecture the Tory Party on discipline, but perhaps somebody should. The Government have calculated what impact all of this will have on the UK, and they must tell the truth to the public about what is coming. They must allow Parliament to play its proper role.
Lord Horam (Con)
My Lords, I am glad to hear of the semi-conversion of the noble Baroness, Lady Jones, to something like what I regard as common sense.
There always seemed to me to be three elements in the negotiations between the UK and the European Union. First, there is the dosh—the money. It has been obvious for months that Germany would be very unhappy about there being a big hole in the European budget, which it would largely have to finance. It was expecting us to come up with a better deal than we have already. Frankly, £20 billion is ridiculous: we could easily double that with no real problems. Our deficit at the moment is £1.7 trillion; another £20 billion is frankly ridiculous. It is about 100 times the amount for Harry Kane’s transfer to the Tottenham Hotspur football team. As one of my investment banker friends said, £40 billion or £50 billion upfront by the UK would be an absolute steal for us.
Secondly, there is the issue of the transition. As the noble Baroness, Lady Kramer, rightly pointed out, imagine the scene at Dover if this were to end in March 2019 with no deal whatsoever and acrimony as well. The queues would be back to the M25, just at Bexley: in that case, there would be a certain amount of chortling in heaven. The fact is that the reputation of the Government for competence is already sliding and the effect of this would be a hammer-blow. Black Wednesday would be as nothing compared to what would happen if we marched off the end of the cliff.
As the noble Lord, Lord Kerr, rightly pointed out, for all the platitudes and good will of the Prime Minister, we do not have a mechanism. What is the end-point of all of this? We have no clear understanding, after all this time, of what is to be expected. I personally think we should stay in the customs union, but I recognise that that would cause a few problems for Liam Fox. The alternative, frankly, is that we have an association agreement, which the European Union has with many of its surrounding countries, such as Ukraine, Morocco, Turkey, Algeria, Serbia and so forth. All of these have association agreements with the European Union which contain free trade agreements. That is a familiar template for the European Union and a flexible one. You can put into it what you want and that would make total sense for us given that, even outside the European Union, most of our trade would still be with the European Union.
It is a delusion to imagine that somehow or other there is a large area out there with which we could do trade but are not doing so at the moment. That is not to understand at all the nature of trade, which is that trade halves as distance doubles. That is the fact of the matter, and will always be the case. Therefore, we should follow the advice that was set out in the House of Lords European Union Committee report, Brexit: the Options for Trade, way back in December, on transition deals and the possible role of an association agreement. It shows how lugubriously slow the Government have been to follow it up. We still, even now, have no clearer idea where we are going.
The time has come for the Prime Minister to crack the whip and get a move on. Otherwise, we will be in real trouble. If she does crack the whip, believe you me, she will have Parliament and the people behind her.
Lord Liddle (Lab)
My Lords, my congratulations to the noble Baroness, Lady McIntosh, on getting this debate on this day of all days, given that our Prime Minister has to face her European partners tonight. I will tell the House briefly what I think she ought to say but fear will not.
First, any suggestion of the United Kingdom walking away from these talks would bring about a national catastrophe that anyone who seriously cares for our national interest could never contemplate.
Secondly, the money question has to be settled quickly. The Florence speech accepted not only that the financial obligations will be met to the end of the current financial period but that Britain will honour obligations it had met during its period of membership—that means commitments we have made that have not, as yet, been paid for. A classic example is EU pensions. For the Government to say that they will not contribute to the pensions of British people who have worked in the national interest in the European institutions is, frankly, ignorant xenophobic populism. We have to meet those obligations.
Thirdly, we should set up an objective method of calculating those obligations—probably a Brit and a continental from the European Court of Auditors. We should look for an independent process to make that calculation.
Fourthly, as the noble Lord, Lord Kerr, said, it is not good enough to talk just about a transition; we have to say what we are transitioning to. I would like a transition to the position of Norway. However, I suspect that all Mrs May might be able to say, if she has the courage, is that she wants a transition to a Norway-minus position. What does that mean? It means that we want to maintain frictionless trade with the EU and will adhere to European standards, except in a limited number of cases where we decide to diverge. Where we decide to diverge, we will set up joint consultation machinery with our EU partners. On any question of divergence, they will tell us how they would react to that divergence and then, in the light of that knowledge, we would decide whether we are going to go ahead and exercise the sovereign right. There would have to be a relationship of co-operation.
We have to resolve the question of the final destination. The Prime Minister should say to our partners that if there is any continued dispute in the Cabinet about this, and if the Brexiteers are not prepared to accept it, they should go and enjoy the freedom of the Back Benches because there is a clear majority in the House of Commons for a sensible, long-term deal with the European Union.
Lord Butler of Brockwell (CB)
My Lords, I am glad to follow the noble Lord, Lord Liddle, because it gives me a chance to amplify the remarks for which he criticised me earlier in the week. First, I will address the subject of the noble Baroness’s Question. I am afraid I cannot get as excited as the noble Baroness, Lady Jones, about a government assessment of the effect on the economy of leaving without a transition. I do not doubt that leaving without a transition would be worse than getting an agreement to it, but such an assessment on the effect on the economy is, in my view, unlikely to be worth the paper it is written on. We all remember how unreliable were the forecasts on both sides before the referendum of the short-term effects of a vote for Brexit. As a member of your Lordships’ European banking and finance committee, I hear every week from witnesses how speculative are the forecasts on the effects on our financial services of leaving without a transition.
Although I was and still am a remainer, we should now direct all our efforts to getting the best agreement available in the present negotiation. That should certainly include a transition. Here, I find myself in disagreement with my old and noble friend Lord Kerr and others that the Government have not been clear about the ultimate destination. It seems to me that the Government have been clear. They are looking for a bespoke agreement, not an existing agreement, and as wide-ranging and frictionless a trade agreement as can be negotiated.
In her Florence speech, the Prime Minister made a constructive offer on all aspects of stage 1. If the EU now refuses to proceed to discussing our future relationship, it will be acting in bad faith and inconsistently with Article 50. We would be justified in saying to Monsieur Barnier, “We hear the clock ticking”. In this respect, the opposition parties have to be very careful, and I include my noble friend in this. Of course I accept the role and the duty of the Opposition to hold the Government to account and point up what they see as deficiencies. However, if they simply mock the Government and exploit their internal differences for party-political reasons, they risk undermining our negotiators and delivering them into the hands of the EU. There is too much at stake in the national interest for that.
Lord Cormack (Con)
My Lords, the noble Lord, Lord Butler, should be congratulated on his wonderful charity and willingness to see precision where some of us find it difficult to detect that quality.
We all should be a little humble in this debate. Those of us who were on the remaining side have to recognise that the vote went the other way, albeit by a very small majority. But those who voted leave, for a variety of reasons, equally have to display a degree of humility and recognise that their victory was a narrow one. Until both sides accept that there has to be constructive compromise, we are not going to get very far. In his excellent speech, my noble friend Lord Bowness said that we have to face reality. My noble friend Lady McIntosh, who introduced this debate extremely well, made clear how many difficulties we have to surmount in less than 18 months.
I have pleaded before in this House, and now plead again. The two Houses of Parliament are very often poles apart and do not understand each other. We are in completely uncharted waters in an unprecedented situation. No country in the European Union has ever before tried to come out. This is the time to have a joint Grand Committee of both Houses, accessible to Members of both Houses as Grand Committees are, where we can try to come together and discuss the intricacies of the extraordinary situation that we are in, and we should try to do so with the sort of charity that the noble Lord, Lord Butler, just displayed in your Lordships’ House. Unless we can do that, the future is dire.
I was, frankly, dismayed to see this morning in the papers a letter reportedly sent to our Prime Minister—almost in the form of an ultimatum. A number of people in the Conservative Party, and one or two in the Labour Party as well, do not seem to grasp the immensity of what we are faced with. They are behaving with a degree of certitude and arrogance that is not helpful if we wish to see this country, which saved Europe twice in the 20th century, continue to play a constructive part with our present friends, allies and fellow members of the Union, who must remain our friends and allies after March 2019.
We have a part to play. I hope the Government will listen to my suggestion. I have discussed it with Members of both Houses, who seem fairly receptive, but we have to move forward.
Lord O’Neill of Gatley (CB)
My Lords, I now find myself wondering whether the most passionate advocates of Brexit, some of whose arguments we have just heard the noble Lord illustrate, are secretly in favour of a second referendum on the original question. If not, I cannot see any of their logic. Brexit with no trade deal—the ultimate consequence of no transition—is anywhere from worrying to extremely bad. I shall make three quick points.
First, the world economy has shown in the first half of this year probably its strongest performance compared to any since the 2008 crisis, with eight of the 10 largest economies in the world accelerating. However, there are two notable exceptions—sadly, one of them is the UK. It would normally be close to impossible for the UK not to benefit from such a synchronised global upswing. In fact, our economy has slowed. We do not really know why, but it is probably to do with the weakness of investment spending and the pressure on consumers coming from sterling-related weakness in the cost of living— both of which can be traced to Brexit.
The second, more concerning, point is that after a very small lift in 2016, our productivity performance has apparently turned down again. Long-term economic growth is driven by two factors alone: the size and growth of the labour force, and that force’s productivity. If we pursue Brexit at any price, we will add a fresh challenge to that of our weak productivity through a significant threat to the significant advantage our labour force growth has shown.
Thirdly, as I have highlighted once before in this House, at the end of 2016 China became Germany’s number one trade partner, overtaking France and the US. You are good at trade if you are good at trade. To be good at exporting, we must produce things that the fastest growing domestic economies want, as well as, or instead of, being very competitive and/or trading on the best terms available. For the UK, a small—too small, sadly—group of companies have such strong brands that it is possible that defaulting to WTO rules may not be a massive issue for them. An example close to us might be open-top bus tours around Westminster, which would probably have a market, irrespective of this outcome.
To be seriously more successful in international trade, we need a dramatically increased effort toward the largest and fastest growing economies in the world, not just sentimental relationships with Commonwealth countries. This year, China will add another $1 trillion to global GDP. That is equivalent to creating five new New Zealands in one year. A lot of industries are not in the position of open-top bus tours around Westminster; for those that are highly integrated into the world economy, defaulting to WTO rules is likely to be highly damaging. I can think of at least two such major industries: autos and finance, the latter of which the noble Baroness, Lady Kramer, talked about. Do we deliberately want to reduce the importance of each of those? Autos, by the way, is one of the few major industries that has been highly productive in the past 30 years, although there may be many others. The time has come for less emotion and more focus.
Baroness Ludford (LD)
My Lords, one of the factors inhibiting a transition arrangement deal, leaving aside the stasis on phase 1 of the negotiations, is the Government’s failure to specify what it would be a transition to, as the noble Lord, Lord Kerr, among others, has pointed out. “Deep and special” does not cut the mustard; it is just a slogan.
Business needs to hear that the Government intend to stay in the single market and fully in the customs union in the standstill, in the transition and permanently. Of course, that would be achieved by remaining in the EU, which would also give us a voice in the rules. The Government must specifically resile from a no deal intention. I find it rather rich that the opposition parties are enjoined by the noble Lord, Lord Butler, to back the Government when their own party is not backing them.
The notion that crashing out of the EU will liberate the UK economy to prosper, as it sails the high seas in buccaneering spirit, is rejected by all serious and credible economists. No WTO member can unilaterally decide its rights and obligations. A new schedule of our trade arrangements would take years to negotiate and, as we saw recently, be a golden opportunity for trade partners to extract concessions. No country can unilaterally fix the regulatory environment it would face. The notion that life outside the EU would be less affected by red tape is utterly fallacious. Being in the customs union and single market cuts paperwork over rules of origin and local content, tariffs and compliance with regulations.
No deal would make the bad economic situation, as sketched by the noble Lord, Lord O’Neill, much worse, as highlighted by the OECD just this week. The cost of living would rise, possibly costing families £5 more a week. With inflation already at 5%, that is no small deal. There could be trade and customs chaos, with tailbacks of lorries, perhaps even from Dover to the Dartford Crossing, as mentioned by my noble friend Lady Kramer and others. Losing the benefits of the EU 66 trade agreements would be a serious setback: we would potentially see serious job losses and a regulatory minefield, with industries struggling to function as we dropped out of EU rules and agencies.
My party is not secretly in favour of a further referendum. We are extremely up-front about that ambition. There are no options as good as remain, and thus voters should have the chance to think again on the wisdom of Brexit, once they see what it would really entail.
Lord Tunnicliffe (Lab)
My Lords, the Prime Minister’s speech in Florence marked an important turning point, not because it brought about a breakthrough—it did not. The EU’s chief negotiator was clear when he described talks as having reached deadlock. It was significant because the Government finally accepted the need for a transitional period, which Labour has consistently argued is essential for British business and jobs. Florence, while offering no guarantees, at least represented a step forward.
Falling off a cliff edge in 2019 is in nobody’s interests. If anyone has any doubt about the importance of transitional arrangements, they need look no further than two reports published this week that warn of the dire economic consequences we face if the Government cannot get their act together. The OECD has said that no deal would wipe £40 billion off the UK’s economy, while the Resolution Foundation revealed that if the UK reverts to most favoured nation tariffs, the cost of living will rise dramatically. How many more warnings do the Government need before they wake up to that fact? TheCityUK warned that,
“a transitional deal is of diminishing value”,
if no agreement is struck by the end of March next year. Banks and other financial services have been clear: without progress, they will have no choice but to move at least some of their operations out of the UK. Can the Minister give this industry the “urgent clarity” it needs?
As the Prime Minister has now recognised, it is nonsensical for businesses, consumers and public bodies to adjust to one set of changes in 2019, only to move to another regime when the new UK-EU relationship comes into force. That is why we on these Benches welcome the Government finally accepting the need for a transitional deal. For the avoidance of doubt, such a deal must not become a means of staying in the EU. Any transition should be as short as possible, but as long as necessary for our economy.
I urge the Government to finally publish their sectoral impact assessment, as Labour called for during the passage of the Article 50 Act. There is cross-party consensus on this. We know these assessments exist. The Secretary of State has been warned of legal action if they are not published. I therefore hope the Minister will assure us that these documents will be forthcoming.
Baroness Goldie (Con)
My Lords, I thank my noble friend Lady McIntosh for bringing this debate to the Chamber, and I thank your Lordships for your diverse and interesting contributions.
It is in the interests of all that we secure a good deal for the UK and the EU. Good progress has been made. Both my right honourable friend David Davis and the European Commission’s lead negotiator, Michel Barnier, have acknowledged the new dynamic created by the Prime Minister’s speech in Florence. This momentum was maintained during the September and October negotiating rounds.
As I stated in this House on Tuesday, both negotiating teams have continued to work constructively together. Since June we have steadily developed our shared political objectives. Of course, there is still some way to go to secure a new partnership, but we are confident that we are on the right path. Indeed, the shadow Secretary of State for Exiting the European Union, the right honourable Keir Starmer, said in a recent letter to my right honourable friend David Davis:
“The announcement of further progress on the rights of EU citizens and the issue of Northern Ireland is welcome. It is also encouraging to see a more constructive tone in the talks”.
Mr Starmer seems to concede that something positive is happening in these talks.
As I said before, I think there is recognition that progress is now visible and tangible. That has been borne out by different parties and by Michel Barnier himself. He said at the end of the October round:
“Since Florence, there is a new dynamic. I remain convinced that with political will, decisive progress is within our reach in the coming weeks”.
It is important to set a perspective of what are undoubtedly challenging and complicated negotiations against what I think is a positive perception. Indeed, at the dinner earlier this week attended by Mr Juncker, the Prime Minister, my right honourable friend David Davis and Michel Barnier, that view seemed to be shared. I regard that as encouraging.
My noble friend Lady McIntosh made the interesting suggestion that the UK Government might host a round of the EU Brexit negotiations in London. I do not think anyone would be inimical to that suggestion. While the Government have no immediate plans to host a round of negotiations, the arrangements for each round are subject to agreement between both parties. I thank her for what is an innovative suggestion.
Acknowledging the clarity we now see emerging on issues related to Northern Ireland and Ireland, citizens’ rights and mutual financial obligations, and the positive atmosphere to which I referred, the presumption is we shall reach a deal and agreement on an implementation period. Of course, any Government would be negligent if they did not plan for the remote, unwelcome but none the less possible outcome of no deal. Frankly, to fail to do that would be folly.
As the Prime Minister set out in her speech in Florence on 22 September, the Government believe a strictly time-limited implementation period is in the interests of both the UK and the EU. It would help both sides to minimise disruption if we agree this principle as early as possible in the process. We are confident we can achieve this.
An implementation period will help to build a bridge from our exit to our future partnership, to allow businesses and people time to adjust, and to allow new systems to be put in place. My noble friend Lady McIntosh raised the important point of who interprets the rules during this implementation period. On ECJ jurisdiction, my understanding is that it may mean we start off with the ECJ still governing the rules we are part of for that period, but the Government are also clear that if we can bring forward a new dispute resolution mechanism at an earlier stage, we will do so.
In a similar vein, the noble Baroness, Lady Kramer, raised the issue of business sectors, specifically the finance sector. I wish to reassure her that as part of our analysis, the Government are looking at more than 50 sectors and at cross-cutting regulatory, economic and social issues, and engaging closely with business.
It makes sense for there to be only one set of changes for businesses and individuals. That is why the implementation period should be based on the existing structure of EU rules and regulations. During that time the UK and the EU would continue to have access to one another’s markets on current terms, and the UK would take part in existing security measures. Any implementation period should be strictly time limited, determined by the length of time needed to implement new processes and the systems for our future relationship. As the Prime Minister set out, as of today, these considerations point to an implementation period of around two years. That period should be agreed as early as possible to provide certainty. It remains overwhelmingly in our national interest and in the EU’s interest for both entities to succeed in the years ahead.
The implementation period is a temporary measure. In the long term, the Government are seeking a special relationship—a deep relationship—with our European friends and allies. This is a mutually beneficial choice and we are confident we can achieve it. The partnership should be one that reflects our shared values and histories, and that works for the people of both the UK and the EU. That remains our priority.
A number of Members raised and commented on the prospect of no deal. I go back to my earlier phraseology: there is a presumption that we will achieve a deal. We are confident in our ability to secure a deal, but we have a duty to plan for the alternative. As I said earlier, not to do that would be utter folly.
As part of the general planning, we are also planning, under a range of scenarios, to make sure we deliver exit in as smooth a fashion as we possibly can. That includes preparing this country for the future economic partnership we hope to secure. Plans are well developed and they prepare us for a range of outcomes, including the very unlikely eventuality of leaving the EU without a deal. Every government department has developed a detailed understanding of how withdrawing from the EU will affect its existing policies and services in a wide range of outcomes. This general approach of trying to anticipate what is involved, and the unwelcome possibility of having to plan for no deal, was endorsed by Parliament. The Foreign Affairs Select Committee recently said that not preparing for all outcomes would be a “dereliction of duty”.
Among these preparations we have some that will require long lead-in times. We need to begin that planning now for them to remain viable. We hope we will not need all the provisions once we have achieved a deal with the EU. As Members are aware, the European Union (Withdrawal) Bill is currently in the other place to ensure we have a fully functioning statute book on the day we leave. In addition to legislation already announced in the Queen’s Speech, the Government will bring forward further legislation as we require.
We recognise, as a number of Members have importantly stressed, the need for industry to prepare contingency plans. The Government are engaged closely with businesses across each sector to understand the challenges and opportunities that may impact on them in the coming months and years. We accept and understand the need to reduce uncertainty wherever we can, and we are working to get the right deal for industry, ensuring that the UK remains the best possible place to do business.
I am conscious of the time. I want to try to deal with some of the important specific contributions raised by Members. I turn to the noble Lord, Lord Kerr, who posed a number of questions on the destination and the framework. I slightly disagree with his assessment. There is a framework. That started with Article 50—I need hardly tell your Lordships that no one is more expert on Article 50 than the noble Lord, Lord Kerr. However, I remind the noble Lord that Article 50 specifically says that withdrawal is inextricably interwoven with our future relationship with the EU, and that relationship involves trade. We need to move on to discuss that future. That will in turn help to shape the next part of our negotiations. The noble Lord, Lord Butler, made a helpful observation in relation to these issues.
My noble friend Lord Horam raised trade and customs issues. We want an ambitious free trade arrangement—that is what we are negotiating for. We want to move on to discuss these issues and hope that the climate of the negotiations will assist that.
My noble friend Lord Bowness had a rather colourful metaphor about pessimistic outcomes, but the genesis of where we are is a referendum instruction from the voters, and the Government are endeavouring to deliver on it.
The noble Baroness, Lady Jones of Moulsecoomb, asked whether we would publish impact assessments. We are carrying out a programme of rigorous and extensive analytical work to contribute to our exit negotiations, define our future partnership and inform our understanding of how exit will affect our domestic policies and frameworks. It is not standard practice to provide an ongoing commentary on internal analytical work being carried out, but I assure the noble Baroness that it is being carried out.
I commend the noble Lord, Lord Liddle, because he focused on important issues and made some interesting observations. I realise that this is a genuinely difficult issue for him, so I want to thank him for his contribution, which was in many respects constructive and helpful.
The noble Lord, Lord Butler, gave us a timely and wise reminder of what it is realistic to address and what is inevitably speculative and hypothetical. I know that my noble friend Lord Cormack’s views are well intended and they are well known. They will be noted, but I think he will understand that I cannot give him any affirmative response.
The noble Lord, Lord O’Neill, made serious and significant points about the economy. I listened to them with respect and, again, they are noted. The noble Baroness, Lady Ludford, was also pessimistic about a deal. Let me say again that the presumption is that we shall reach a deal. We are focusing all our energy on that and straining every fibre and sinew to achieve it. That is our objective.
Finally, the noble Lord, Lord Tunnicliffe, raised issues similar to those raised by the noble Baroness, Lady Kramer. We want a deal and are striving to get one, and we want a manageable implementation period.
I have run out of time. If I have been unable to address any contributions, I shall look at Hansard and endeavour to make good my deficiencies.