European Free Trade Association

Wednesday 7th February 2018 Westminster Hall

09:30

[Stephen Hammond (Wimbledon) (Con)]

I beg to move,

That this House has considered the European Free Trade Association.

It is a great pleasure to serve under your chairmanship, Mr Gapes, and to see so many colleagues from across the House here so early on a Wednesday morning, when there are so many Select Committees and other things going on.

We all know that this country voted to leave the European Union, and we accept that result. However, what that referendum did not say was how we should leave the European Union. That is what today’s debate is about. One of the great myths of that referendum was that this country also voted to leave the single market and the customs union. It did not. Leaving the European Union was the only option on the ballot paper. How we leave the European Union is the most difficult challenge facing this country, and it is up to us, the Parliament of this country, to decide how we do it.

I think both sides of the House agree that we need an exit and a deal that allow us to trade freely with our former partners and to sign new free trade agreements, and that provide a level of economic certainty to businesses and economic and security certainty to our citizens. I want to discuss an option I think should have wide appeal across the whole House—indeed, it was consistently supported by Brexiteers prior to and during the referendum debate.

There are a number of misconceptions about the European Free Trade Association that need to be addressed. Those misconceptions, I say frankly to those on my Front Bench, were repeated by one Minister last week. It was not the Minister who is answering the debate, but the level of miscomprehension in evidence was concerning.

Crucially, EFTA membership gives the opportunity to have, but does not automatically entail, membership of the single market. It does not envisage political integration. It is economically motivated. EFTA does not issue legislation or establish a customs union, and decisions are made by unanimity.

If we examine EFTA, there are three distinct benefits to the UK as we leave the European Union. It brings significant free trade benefits. On joining EFTA, we would automatically become part of the free trade area between the current EFTA four—Norway, Switzerland, Liechtenstein and Iceland—which covers trade in most goods and services and eliminates tariff barriers. In addition, we would be able to benefit from the free trade agreements they have already signed with third countries. We should not underestimate that; EFTA has 27 free trade agreements covering 38 countries and 900 million customers.

In text and context, many of those agreements are more modern than some of the deals the EU is signing with third countries now. Some of the analysis, certainly around services, would suggest that some of the free trade agreements being signed by EFTA and some of its existing free trade agreements are a much better fit for the UK economy than some of the EU’s, and are more comprehensive. For example, EFTA has a free trade agreement with Singapore and Hong Kong—two incredibly important markets for the United Kingdom, and areas without a completed EU deal.

[James Cartlidge (South Suffolk) (Con)]

My hon. Friend is making an excellent speech. Did he see the recent coverage in The Daily Telegraph noting that South Korea, and possibly other nations with which we have trade deals through the EU, would be looking to use our exit to potentially renegotiate the terms? Does he agree that, were we in EFTA, it would surely be in our favour that EFTA has trade deals with those countries, which would make the process far simpler for us?

[Stephen Hammond]

I entirely agree with my hon. Friend, and I want to make a point in a moment about some of the Government’s ambitions regarding their Trade Bill.

Joining EFTA would be a significant help when it comes to making up for the loss of EU free trade agreements. It would demonstrate to the world that the United Kingdom is not leaving Europe as it leaves the EU, and it would highlight our commitment to global trade. Joining EFTA does not in any way stop the Government’s plan to negotiate a deep and special bespoke arrangement with the EU. Indeed, if that is the Government’s ambition and they wish to achieve it, they should consider joining EFTA, because it would greatly assist that goal by framing it within an institutional set-up that the EU is familiar with.

The negotiations on the Comprehensive Economic and Trade Agreement show how difficult and time-consuming a UK-EU deal could be. CETA took seven years. It was the most ambitious EU free trade agreement so far negotiated, and the Government’s stated ambition is to go some way beyond it. The chances that they will be able to fulfil that ambition without a framework that the EU is familiar with strikes me as laudable but potentially difficult to achieve.

The EFTA court, the surveillance authority, the council and secretariat are all institutions understood and trusted by the EU, with well-established systems for information access and consultation. They can be used as part of any future UK-EU deal, to strengthen our commitment and avoid creating new institutions.

[Dr Rupa Huq (Ealing Central and Acton) (Lab)]

As a fellow London MP, I am sure the hon. Gentleman receives numerous representations from constituents on EU citizens and financial passporting rights. Those people probably think the best course of action would be not to leave at all. Since that is not realistic, will he do all he can to exert pressure on the high command of his party and his namesake the Chancellor—sadly, he is not in the high command anymore—to ensure we have a pragmatic, not a purist Brexit? That way, if the arrangements are ready-made, some of the bumps can be avoided.

[Stephen Kinnock (Aberavon) (Lab)]

rose—

[Stephen Hammond]

I see the hon. Gentleman also wishes to intervene. If he does so at this stage, maybe I could answer both points.

[Stephen Kinnock]

I thank the hon. Gentleman for giving way, and he is making a powerful speech. Is it not the case that the European economic area option ticks many of the leave boxes—no European Court of Justice jurisdiction, the ability to control the inward flow of immigration and the ability to strike trade deals with third countries—but also delivers the certainty that business is so desperately calling out for, because it is a well-established, well-understood agreement that has existed since 1993, but with no ever closer union built into it? Is it not by definition the form of Brexit that ticks the boxes in line with what the vast majority—we might call it the silent majority—of the British people want in this debate?

[Stephen Hammond]

In response to the hon. Member for Ealing Central and Acton (Dr Huq), it is, of course, not my decision who is in the high command, but I understand her sentiments. I absolutely hear her point about financial services. That is why I was very pleased to see the Government taking the initiative and offering unilateral passporting to financial services. Of course, that will work to the greater benefit only if we are able to ensure that the European Union agrees the terms as well, but it was a good start. I wholeheartedly agree with her that the Government’s commitment on EU citizens must be made real and be part of the deal.

The hon. Member for Aberavon (Stephen Kinnock) is absolutely right. In terms of my hon. Friends who are Brexiteers—a few of them are in the Chamber today—I was discussing with one of them last night that the EFTA arrangements are something we can build a consensus around in this country. That is a sensible option, suiting both sides of the argument, and I would welcome any of the pragmatic leavers, including a number who advanced this case during the referendum, joining the cause and arguing for EFTA.

[John Stevenson (Carlisle) (Con)]

This is a really important debate and I congratulate my hon. Friend on securing it. I completely agree with his point that EFTA is understood by all parties; that is one of its great strengths. Does he agree that its true strength, and the one that could be the basis for our negotiations and unite all parts of the debate, is the fact that it has great flexibility within it?

[Stephen Hammond]

My hon. Friend is absolutely right that it has great flexibility. That is why I am putting it forward. There is not only one option. I had a chunk in my speech about what one colleague said in response to the question last week from my hon. Friend the Member for Eddisbury (Antoinette Sandbach), which cited the Switzerland option. Of course, that still allows for bilaterals, and some of those are still available, but there is a panoply of options within the EFTA arrangements.

There is some misconception about whether we would be welcomed back into EFTA, and I make the point that it is not only a flexible arrangement but one we would be welcomed back into.

[Dame Caroline Spelman (Meriden) (Con)]

I congratulate my hon. Friend on securing this timely debate. Is it not the case with EFTA that it does not have the pooling of sovereignty that is currently a big issue in our relationship with the European Union? Most importantly, it affords the flexibility of excluding agriculture and fisheries. We all know that the CAP does not fit well with our large farm structures and that the common fisheries policy has proved very contentious. Those two important industries would benefit from greater flexibility.

[Stephen Hammond]

My right hon. Friend is completely right. I am grateful to her for making that point, because such points need to be heard loud and clear so that the misconceptions can be fought off.

[Peter Grant (Glenrothes) (SNP)]

I was a bit concerned when the hon. Gentleman referred to pragmatic Brexiteers and pointed at me; I may be pragmatic, but I would certainly not call myself a Brexiteer. I am interested in his suggestion that the UK would be welcomed into EFTA. Can he give us his basis for that? Three expert witnesses appeared before the Exiting the European Union Committee yesterday—I understand three more will appear today—and all of them thought it extremely unlikely that the four EFTA members would want the UK to join, partly because the UK’s population is about four times bigger than the current total population of EFTA, and there would be significant concerns about upsetting the balance of EFTA. What indications has he had from the four Governments of the current EFTA countries that they wait with open arms to welcome the United Kingdom in?

[Stephen Hammond]

I apologise if I, with a sweeping hand gesture, put the hon. Gentleman into the Brexit camp, which he does not wish to be in; that was certainly not my intention. I have had lunch with the president of the EFTA court, and I had lunch with the ambassador to the United Kingdom of one of those countries yesterday, but let me quote the Norwegian ambassador to the EU:

“We would maintain an open-minded stance in the event of an application for EFTA membership. Overall, it is in Norway’s interest to maintain as close trade policy cooperation with the U.K. as possible”.

There is a lot of scaremongering about this point, yet it is clear from speaking to any of the ambassadors that the reality is that they would welcome our application.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

My hon. Friend is making an excellent speech. Does he propose EFTA membership as a transitional or a permanent state?

[Stephen Hammond]

I certainly see EFTA more as a potentially permanent state, rather than transitional. I know a number of my Brexiteer friends would probably see it as more of a transitional arrangement, but I see it as potentially long term, partly because of the point I have been making—that membership in no way undermines the Government’s ambition to secure a long-term, bespoke deal with the European Union. There is nothing within the EFTA structure that would prevent that. Given that our ambition is to be global Britain, we should take every opportunity we can to be so, and EFTA will fulfil those ambitions and objectives.

[Jeremy Lefroy (Stafford) (Con)]

Does my hon. Friend agree that there is, as I think he alluded to, a cultural element to this as well? The UK is making it quite clear that, while we may be leaving the EU, we are not leaving Europe. This would send an absolutely clear statement of that, and that we are still very much European and very much committed to our friends and neighbours in Europe.

[Stephen Hammond]

My hon. Friend and I must be of the same mind, or he must have read or have had foresight of my speech. I was going to make the same point in a few moments’ time, but given he has made it for me, I shall cut my speech down. He is, of course, absolutely correct.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

The hon. Gentleman is making an interesting and strong case for EFTA and the EEA. Does he agree that there is a fundamental issue at stake: that the kind of potential end state he talks about, and indeed many of the others we have debated, show that there are many options for how we leave the EU? There is not just one way. That is the real issue at stake. Unfortunately, there are some in this place who would like to close the debate down and say there is only one alternative and no others. In fact, there are many ways in which we could go forward, and it is up to us as a country and as a Parliament to choose.

[Stephen Hammond]

The hon. Gentleman knows that I do not always agree with him, but he is absolutely right on this matter. That is why it is important that there is a consensus from us, as a Parliament, when speaking to the British people, pointing out that there are a range of options. We should not close any of them down as we look for the best solution for this country.

[Sir Christopher Chope (Christchurch) (Con)]

It is implicit in what my hon. Friend says that he is against our remaining in a customs union. Switzerland, which is in EFTA, is outside a customs union and has the freedoms that go with that. Do I take it from my hon. Friend’s speech that he accepts that we should leave the customs union?

[Stephen Hammond]

First of all, nothing in EFTA implies a customs union; there is no customs union with EFTA. That myth is being perpetrated. My hon. Friend is absolutely right that Switzerland is not in a customs union, and nor are any of the other EFTA members. I accept that we are likely to leave the customs union, but as he will know, it is the Government’s stated policy, in the Prime Minister’s Lancaster House and Florence speeches, that the possibility of a customs union is left open. Nothing has changed in terms of Government policy, so I am entirely in line with Government policy on that.

[Mr Dominic Grieve (Beaconsfield) (Con)]

On that point, it is also clear that the first-stage agreement that we reached in December, concerning the border between Northern Ireland and the Republic, must imply the maintenance of a form of customs union. What form that might take is clearly open to some level of debate, but as my hon. Friend may agree, it is quite explicit that it must follow that there is regulatory alignment to prevent the need for customs checks.

[Stephen Hammond]

As ever, my right hon. and learned Friend makes the point rather better than I can. It is absolutely clear that that is implicit and, based on the evidence we heard in the Treasury Committee, explicit in what the Government signed or agreed to at the end of phase 1 of the negotiations in December.

EFTA provides a great deal of flexibility, as we have explored in a number of interventions. It keeps open the option of joining the EEA agreement, which I think would be the right thing to do. However, it must be right that, as we leave the EU, we keep our options open. I say to the Minister in all sincerity that there is a lack of clarity over exactly what type of deal the Government want. We talked about CETA and beyond, and as I said a moment ago, CETA is the most advanced trade agreement that the EU has yet signed with a third country. I understand that the Government want to go beyond that, but the clock is ticking, and in trying to spend a huge amount of time carving out a middle ground between CETA and the EEA, the chances are that we may end up with nothing at all, or with something well below the Government’s ambitions.

It seems to me that an EFTA-style EEA relationship—the Norway option—could be achieved rapidly and will go much further than CETA goes at the moment. That is a route we could pursue for the UK’s best interest, and it must not be allowed to be dismissed without proper analysis and consideration.

[Chuka Umunna (Streatham) (Lab)]

I congratulate the hon. Gentleman on securing this important debate. First, with regard to CETA, one reason why that kind of relationship would not be appropriate for the UK is that CETA substantially covers goods, whereas 80% of our economy is services. Secondly, as he may come on to, one of the objections raised to our being part of EFTA, and using that as a way of accessing and being part of the EEA, is that we would be a rule receiver as opposed to a rule maker. Does he agree that it is wrong to say that EEA and EFTA members have no influence on the rules that apply? Does he also agree that if we want to access the single market, we will have to comply with its rules, and that we are more likely to be able to frame those rules if we are part of the EEA, through EFTA, than if we are sitting outside and simply accessing the single market through a free trade agreement?

[Stephen Hammond]

I of course agree with the hon. Gentleman. I am about to make exactly those points, because it is important that they are made loud and clear. As he will know and will have observed, I have spent a lot of time in the Chamber over the last two years making the case for services, which is one of our biggest tax generators. The public services that we all enjoy will not be able to be funded in the same way if we do not protect those services. As he will have wanted to point out, the EFTA arrangement covers services in many cases, whereas CETA, for instance, does not. That is a clear issue that the Government will have to confront.

The EFTA-EEA framework is motivated purely by the economy and not the pursuit of a political objective such as ever closer union. It is crucial that people remember that. The EEA would give the UK the same access to the single market as it has now for most goods and services. It is an off-the-shelf, already tested model that would provide businesses and our citizens with the most certainty that we can give them as we leave the EU. Yes, we would be subject to EEA regulation, but as my right hon. Friend the Member for Meriden (Dame Caroline Spelman) pointed out, it does not cover the controversial common agricultural and common fisheries policies or justice and home affairs. From the outset—to allay the concerns of some of my hon. Friends—we would have control of those policy areas.

[Daniel Zeichner (Cambridge) (Lab)]

Will the hon. Gentleman give way?

[Stephen Hammond]

I will just finish the point, because it is relevant to what the hon. Member for Streatham (Chuka Umunna) said. He is of course right: regardless of any deal with the EU that we choose to do, domestic businesses hoping to trade with the EU and the rest of the world will have to comply with what are often called laws but in reality are trading standards, and most of those are international trading standards, so there would be no change there.

[Daniel Zeichner]

Does the hon. Gentleman agree that a further advantage of the EEA-EFTA arrangements is access to EU programmes such as Horizon 2020 and Erasmus, which is of crucial importance to science and research and the universities sector?

[Stephen Hammond]

The hon. Gentleman has clearly read the EFTA arrangements correctly. I concur with him.

[Kevin Hollinrake]

Can my hon. Friend also confirm that EFTA/EEA does not cover taxation, so we would have an independent VAT policy, for example, if we joined EFTA/EEA?

[Stephen Hammond]

My hon. Friend has clearly also read the EFTA agreement and arrangements, and he is of course correct. There is no principle of direct effect with EEA-EFTA membership. As he has pointed out, that means that all laws must be approved by domestic legislatures. The UK would participate in drawing up proposed EEA legislation by serving on relevant committees. That is more of an input than is currently planned by the Government for their transition or implementation period—call it what you will. And certainly EFTA would have more of an influence collectively over the process with the United Kingdom as a member. We would regain our seats on global regulatory standard-setting organisations, on which much of EEA law is based, and ultimately we would retain a right of reservation.

This would all be supervised by the EFTA Surveillance Authority and the EFTA court, not the EU institutions. That would preserve for the Government the red line of avoiding ECJ jurisdiction.

[Anna Soubry (Broxtowe) (Con)]

I congratulate my hon. Friend on his excellent speech. I am sorry that I cannot stay for the full duration of what I anticipate will be an equally excellent debate. Has he explored whether it is possible for any arrangement that we come to with the European Union by way of a free trade agreement to be in effect docked? If we join EFTA, it could be docked in EFTA and therefore the EFTA court could have some role in relation to that agreement, which, again, gets away from any of the concerns that many right hon. and hon. Members have about the ECJ.

[Stephen Hammond]

My right hon. Friend is of course a lawyer and I am not, but I have had conversations with the president of the EFTA court, Mr Baudenbacher, and he would agree that her interpretation is correct and what she describes would be possible. That is only one opinion, but it is that of the president of the EFTA court and therefore it clearly carries some weight and some merit.

The EFTA court has made divergent decisions from the ECJ on numerous occasions. In fact, because the EFTA court deals with cases more quickly, it often hears the novel cases first, and in some cases the ECJ follows the EFTA court. The EFTA court’s rulings are only advisory domestically, so it cannot overrule our sovereign court, the Supreme Court. Again, the point is that we would be heavily involved in influencing.

[Nicky Morgan (Loughborough) (Con)]

I, too, congratulate my hon. Friend on securing this very important debate. Does he agree that one reason why many people voted to leave the European Union was that they wanted the UK to take back control? He has just brought up the very important word “sovereignty”, which for many people in the debate is at the heart of why they voted the way they did in June 2016; many people wanted to go back. Of course, the UK was a founding member of EFTA in 1960, so does he agree that the EFTA-EEA arrangement would meet the test of looking back to a day when we were happy with our relationship with the European Union and, of course, the UK would take back control?

[Stephen Hammond]

My right hon. Friend, the Chairman of the Treasury Committee, is right. One great virtue of what we are talking about today is that we are looking at where the UK is at its best, in that we are looking at the economics rather than becoming obsessed with ideology about some of the political points. This proposal solves many of the legal arguments and gives economic certainty to businesses and citizens, which is clearly what the House wants.

[Nigel Dodds (Belfast North) (DUP)]

I, too, congratulate the hon. Gentleman on securing this important debate, and I thank him for his generosity in taking so many interventions. Can he clarify that his position is to join EFTA in order to remain or be part of the EEA, or does he contemplate being part of EFTA without EEA membership?

[Stephen Hammond]

One point that I am making is that there is a range of options for us as a Government and a country to consider. Personally, I would argue for the EFTA-EEA arrangement, which I think gives us a huge number of advantages. It gives some certainty to British business. It allows us to do what the Government want to do in having a bespoke EU-UK deal and would allow that to be negotiated in a timely way. It would give us advantages in relation to free trade. We will not be in “the” customs union. If we chose to do so, we could establish “a” customs union. It seems to me that the EFTA-EEA arrangement is absolutely a good place for the United Kingdom to start as we leave the EU. Whether that is the choice of the House, if it comes to be discussed on the Floor of the House of Commons, is another matter. My point is that there is a range of options. Personally, I will argue for the EFTA-EEA arrangement; I think that is the best arrangement.

Let me deal with the point that the right hon. Member for Belfast North (Nigel Dodds) may have wished to come on to—I am getting close to the end of my remarks, Mr Gapes, but you will have noticed that I have taken a fair number of interventions so that colleagues can be heard.

Understandably, free movement of people will be a concern for many, notwithstanding the fact that EU migrants are net contributors to our economy and that the last set of figures available—official statistics—showed that net EU immigration was down to about 9,000 a year. It is true that, under protocol 15 and articles 112 and 113 of the EEA agreement, EFTA states can suspend free movement of people on a reciprocal basis. It is important to remember that. Some will say that that is only theoretical, but it is important to remember that the European Commission agreed, during the pre-referendum negotiation, that the UK would be justified in applying the proposed emergency brake for similar reasons. Therefore, the protections enshrined in articles 112 and 113 of the EEA agreement would undoubtedly apply should we choose to join EFTA, because the precedent has already been set.

As for EU budget contributions, which would be another concern, they would of course be subject to negotiation, and we have already conceded the concept of paying for access if we deem that to be in our interest. The EFTA-EEA countries make a financial contribution to the EU in two ways. They contribute, first, towards European cohesion efforts and, secondly, towards the programmes in which they participate. The House of Commons Library has been frequently quoted by hon. Members on both sides of the House to justify their position, so I would guide people to the Library’s estimate that if the UK were to join the EFTA-EEA arrangement, the contributions to the EU would be 25% less than any contribution that we make now or would make during any transition period.

The concern has been expressed that the current EFTA members might have reservations about one of the big G8 economies joining. However, as I said in response to an intervention, the indications that I have had, from quite powerful authorities, are that we would be welcome in EFTA. It would be a chance for EFTA to be renewed and revitalised, with better prospects and new aspirations for arrangements with other countries. The argument that the EU is trying to tell Norway not to move forward—as we have seen from what the Norwegian ambassador to the EU has said—may be a bit of a game and role play, but the reality is that the United Kingdom would be welcomed back into EFTA.

I ask the Minister to ensure that the Government keep open the option of re-joining EFTA. I see no reason why it would not fulfil the Government’s ambition. It provides the Government with the flexibility they say they require—and I agree—in negotiating to get the best deal for Britain, but I remind hon. Members that there is nothing in EFTA membership that seems to go against any of the plans the Government have set out so far.

Finally, in a national crisis—and this is a national crisis—the British political class has always had the ability to put aside ideology, reach a national consensus and act in the national interest. Surely that is in the ability of this generation’s political class. We must be able to stand up and show that we can match our forefathers. We should be seeking to build that national consensus and achieve the best outcome for Britain. It is abundantly clear to me that there is no model that will satisfy all sections of the British public. I believe—I have said this many times—a no-deal scenario would be bad for our economy. However, this approach would fulfil the result of the referendum. It would satisfy a large—I think overwhelming—majority of the British public and perhaps, importantly, this House of Commons, and go a long way to healing the divisions that were there. I recognise that EFTA is not a universal panacea, nor does it have all the benefits of membership of the single market and the customs union, but I believe, and I hope this whole House believes, that Britain’s negotiating position and its economic position post-Brexit will be improved by joining EFTA.

[Several hon. Members rose—]

[Mike Gapes (in the Chair)]

Before I call Back Benchers, I would like to make clear that I have to call the Front Benchers at 10.30 am. We have very limited time if all three Front Benchers are to get their full time and we are to give Mr Hammond time to make a brief comment at the end. I implore you to be brief, minimise your interventions, and if you have already intervened, please do not intervene again if you can avoid it. Hopefully, I will be able to call all those who are indicating they wish to speak.

10:02

[Ian Murray (Edinburgh South) (Lab)]

It is a pleasure to serve under your chairmanship for the first time, Mr Gapes. We normally sit side by side on the Select Committee on Foreign Affairs, so the roles are slightly changed this morning. I also pay tribute to the hon. Member for Wimbledon (Stephen Hammond) for bringing this timely debate to the Chamber.

I say to the Government, at this time of national crisis and debate, it should not really be for Back-Bench Members of Parliament to have to bring debates to Westminster Hall on so critical a matter. If it is about taking back control, Parliament should be debating this every single day of every single week, so that the public can have a real view about where we are heading as a country in exiting the European Union. We are clearly no longer in a debate about staying in the EU; instead, we are talking about the least worse option when we leave.

The hon. Gentleman’s arguments clearly demonstrate that EFTA is one of the options the Government could choose to ensure we have the least worse exit from the EU. Whether it is leaked, not leaked, written, not published or whatever, the Government’s analysis shows that this is the least worse option, so why would they not take it? I have consistently said in the main Chamber, in Westminster Hall, and indeed in newspaper articles, that whether one agrees with these arguments or not, the fact that the Government have taken them off the table shows that their direction is towards a place that will fundamentally damage the UK economy for generations to come. It is also clear to anyone who follows this debate in any kind of detail that the goals, aims and objectives the Government have set themselves when leaving the European Union are completely and utterly incompatible—incoherent—with the red lines they have set themselves.

A trade deal with the European Union. Maintaining tariff-free, frictionless access. Ensuring the issues around Northern Ireland are resolved. Achieving regulatory harmonisation. Staying in European programmes such as Erasmus and Horizon 2020—Edinburgh University has issued its annual report, the back pages of which show where it gets its research funding from, and there is page after page showing tens of millions of pounds that come from the European Union. If the Government want to achieve all of those objectives—I have no doubt that they do—I suggest they reach out, keep everything on the table and say to Parliament, when taking back control, that the best way to achieve all of those objectives is through EFTA, the EEA, a single market or a customs union. Whichever way we want to look at it, let us keep those options on the table and have those arguments.

EFTA is important because it is about economic integration between its members. The EEA allows that economic integration between the EFTA members and the European Union. That seems to me to be very similar to the Prime Minister’s goals and objectives in both her Lancaster House and Florence speeches. We want free, frictionless trade. We want regulatory harmonisation. We want goods and services to be included, as my hon. Friend the Member for Streatham (Chuka Umunna) said. As the hon. Member for Wimbledon said, this is not CETA, but is it CETA plus plus plus, which the Secretary of State for Exiting the European Union mentioned a few weeks ago?

[Stephen Doughty]

My hon. Friend is making an excellent speech. Does he agree that the problem the Government have got themselves into is that instead of keeping all the options open, the Prime Minister is having to respond to the extremists in her own party on a reactionary basis and close off options, exactly when we should be exploring the possibilities of all the options and the best way forward for the country?

[Ian Murray]

My hon. Friend hits the nail on the head. This Government are not looking at the best possible option for exiting the European Union. They are trying to resolve a decades-long problem in their own party, which is now raising its ugly head again, as we have seen in the newspapers in the last few weeks. I firmly believe that many senior members of the Government and influential Members on the Government Back Benches would rather see the UK fall off a cliff, to achieve their ideological goals and take control of their own party, than do what is in the best interest of the country.

I will wrap up, because I am aware others want to speak. EFTA is the ninth largest trading partner in the world in goods and the seventh largest in services. It is the third largest trading partner with the EU in goods and the second largest in services. If that deal was put on the table to the United Kingdom by Michel Barnier today, we should bite his hand off to take it. It is on the table, it is here and it is ready made. The Government would be committing a massive dereliction of duty if they did not at least consider the option of staying in EFTA.

10:08

[Antoinette Sandbach (Eddisbury) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gapes. Last week at DExEU questions, the Under-Secretary of State for Exiting the European Union, my hon. Friend the Member for Wycombe (Mr Baker), challenged me to table a debate on EFTA. I am grateful to my hon. Friend the Member for Wimbledon (Stephen Hammond) for having the considerable foresight to have already done so. I know that he and others have been at the forefront of the push to get EFTA onto the Government’s agenda. I listened carefully to his contribution and share most—in fact all—of his perspective. His timing could not have been better, because it is vital that we have an evidence-led debate on this subject and on the broader subject of the UK’s relationship with the EU.

The main focus of my remarks will be the transition and how best to manage our departure, should a deal not be achieved before Brexit day. At the end I will address EFTA membership in the longer term and how this can be in our national interest. I will be brief, because I have discussed this recently. If hon. Members wish to know my thoughts in more detail, they can check the Hansard record of the debate on 22 January.

The Government do not have much time left to strike a deal, as Michel Barnier reminded us all yesterday. The time is coming when the Government must make tough choices, and those need to be based on evidence rather than on ideology—particularly an ideology that can be seen at the fringes of our party. The Government are also delaying several key pieces of work that will prepare us for the world post being in the EU. The road haulage Bill has been delayed, and the immigration White Paper has been delayed and may not be published until the end of the year.

I have consistently called for Ministers to be given the time that they need to think through their decisions. This is, as others have said, one of the most complex tasks the country and its Administration have faced in decades, and the timeframe for making decisions should reflect that, but under the current arrangements, we will have to restructure our entire relationship with the world in just a couple of years. Roy Jenkins once compared Tony Blair’s approach to winning high office to that of a museum curator carrying a Ming vase across a polished marble floor. I cannot help but think that Ministers may sympathise with that image as they hold on to something as precious as the democratic choice of the public while having to deliver Brexit in a manner that does not harm the economy, wear away at the social fabric of this country or damage our standing abroad. To do that, I ask Ministers to make up their minds on all the best available options, and to respect the wishes of all our constituents, not just either the 52% or the 48%.

There are considerable merits of EFTA for a longer transition period. I support the Government’s ambition for a deep and enduring partnership with the EU. Given our shared history and geography, it would be wrong to adopt CETA wholesale. To propose an entirely new arrangement is ambitious, but I welcome that ambition. Our partnership must be deeper than the EU has with any other third party, and it must include a deal on services, which make up almost 80% of our economy and are therefore essential to our prosperity.

I am aware of the pressure that the Government are under to strike a deal soon, and this is where the first benefit of EFTA should become apparent. If we were able to expedite rejoining EFTA it would provide a soft landing should the Government fail to strike a deal before the deadline. Currently, failing to strike a deal would see us ejected from the EU with no alternative to WTO terms. EFTA should be that alternative. Last week’s Treasury estimates, which are the best data we have at this point, suggest that WTO terms would cost us 8% of GDP growth over the next 15 years.

[Kevin Hollinrake]

My hon. Friend is making an excellent speech. To take her back to her earlier comments on a transition: is she proposing this scenario as a transition or a permanent state?

[Antoinette Sandbach]

It is the option that gives us the leeway to negotiate. It is an important staging post. Given the severe impacts that the WTO alternative would have, it is a safe harbour, if I can put it that way, with all the benefits that my hon. Friend the Member for Wimbledon has already outlined.

The reality is that if we do not take advantage of the opportunity that EFTA membership would give us, we are facing a cost of 8% growth in our GDP. That is a very significant cost that will have a significant impact on tax revenues and employment prospects in this country. By comparison, EEA membership through EFTA would allow us to recoup 6% of that lost growth, which is important for the Government to consider. I note that this month the UK Trade Policy Observatory has published an important briefing paper on the sectors most vulnerable to Brexit, looking at the different options. Perhaps those who are not convinced by the Treasury analysis can look at independent analysis—although I think the Treasury analysis is independent—published by a third source.

EFTA also allows the Government to meet their existing commitments, particularly around having no hard border between Northern Ireland and the Republic of Ireland. It seems to me, from the provisions in paragraphs 49 and 50 of the agreement made in December, that that is a crucial ambition that we need to step up and achieve. We need to examine whether EEA membership and continuing membership of the customs union is the only way to deliver that promise. Even if it is not, it gives us the time to look at what other options are available.

I listened with interest to the concerns expressed by the noble Lord Bridges in the debate on the European Union (Withdrawal) Bill last week that transition needed to be a bridge to the future, not a gangplank into thin air. EFTA offers that bridge: a graduated transition that sees us leaving the EU, regaining control of swathes of policy areas, but retaining the vital trading and economic links that have built up between the UK and Europe, until a better deal can be struck. I know that some Members are concerned that this is a route to allow mischievous remainers to get back into the EU, but that is not correct: it is not the intention. Leave won; some leavers still need to get used to that. Those who have fought for decades to secure our departure from the EU have far more to fear from a badly executed Brexit than they do from using EFTA to bridge any potential gaps.

Like my hon. Friend the Member for Wimbledon, I think that the long-term benefits of EFTA will become clear should we apply to rejoin, as I hope we will. He has already outlined the potential market access to more than 900 million people. From a sovereignty perspective, EFTA decisions require unanimity; we would still have the power of our veto. We would take back control of farming and fisheries. We would be rid of ever closer union and there would be no prospect of the single currency. EFTA would address a huge part of the public and political concern about the EU, while still allowing the UK to benefit from the single market.

I do not want to revisit the details I discussed a fortnight ago, but I do want to add two points. I have faith in the Prime Minister’s ability to strike a deal, but if we do not reach agreement with the EU regarding the Irish border, EFTA would allow us to extend the existing commitment we have made into the longer term. The breathing room that EFTA arrangements provided would strengthen the Prime Minister’s hand in negotiations. In the event of no deal, the UK faces significant detriment from WTO terms.

EFTA offers a route that will allow Ministers to respect the referendum result, our commitments on the Irish border and the needs of our economy. In a number of areas, it would allow considerably greater freedom of action than we currently enjoy. It would ensure that the most complex parts of our negotiation with Brussels—the issue of the Irish border—is resolved in the short term, and it would provide more time to create a bespoke solution. It allows us to minimise the risks of no deal and strengthen our hand in negotiations. If Ministers disagree so vehemently with the Treasury analysis, what are their own assessments of the impact of no deal? What deficiencies do they identify in not only the Treasury analysis, but much of the analysis by independent think-tanks that are external to the UK civil service?

EFTA constitutes the best arrangement for a plan B in the unlikely event that plan A fails. I believe that it is a good deal for Britain in the longer term, and ask that colleagues rethink this issue and recognise how EFTA can offer us a safer, more secure route out of the EU and into the world.

10:19

[Paul Masterton (East Renfrewshire) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gapes. I will be very brief so the other two speakers have a chance to get in.

From the conversations I have had across East Renfrewshire in recent months, people are increasingly fed up. They do not want to hear any more about a hard Brexit, a soft Brexit, a red, white and blue Brexit, a “Brexit means Brexit” Brexit or even a “Brexit means Breakfast” Brexit. It is time for practical, workable solutions to be put forward in the national interest. They do not want ideology. If we have to give it a name, they want a “smart Brexit”, as my hon. Friend the Member for Wimbledon (Stephen Hammond) put it in a recent article.

We must be pragmatic, sensible and honest about the situation that faces us. Should we be optimistic? Yes, we can be and we should be, but that optimism has to be grounded in reality. It is far too simple an argument to say that the Germans need us to buy their cars and the French need us to buy their brie so it will all be great.

Just as Government contingency planning for all scenarios must cover a no deal, it must also cover us entering EFTA with the EEA bolt-on. I simply ask that that option is not taken off the table. Let me be clear, that is not necessarily a final destination—although we should not rule that out—but a safe harbour or staging post that would give us a suitable and workable framework from which to work while the free trade agreement is thrashed out and formalised.

EFTA guarantees to people who voted leave that we are implementing their democratic will to leave the European Union. If anything, it finds that sweet spot in reflecting that the EU referendum result, although decisive, was not overwhelming. We will be in the single market but not members of the EU. We will leave the EU sensibly—even conservatively—if we recognise that trade is only one part of our integrated and co-operative relationship that needs to be unpicked.

In EFTA, from day one, we will be outside the broken CAP system and the hated common fisheries policy, which are totemic issues that lie behind the largely ignored but sizeable minority leave vote in Scotland. Any question of ever closer union would be gone; we would not be under the direct jurisdiction of the European Court of Justice, as there is no direct effect and no supremacy of EEA law, and our membership dues would be significantly reduced. Freedom of movement can be dealt with flexibly within the EFTA system because, contrary to what is commonly asserted, Schengen is not part of the EEA agreement.

EFTA will also give us scope to form trade deals across the world from day one and to take advantage of the bloc’s existing FTAs while we create those bilateral agreements. Preferential access to EFTA’s markets while we finalise our new global trading relationships would provide a good basis for British business. Arguably, EFTA’s suite of trade agreements are a better fit for the UK than the EU’s, given our trading patterns, and they are more comprehensive. EFTA’s size and nimbleness as a bloc has allowed it to adapt its approach to free trade agreements to cover trade in services. EFTA would ultimately allow us to start our journey to our destination, while giving us the flexibility to ready ourselves for what may lie ahead.

If the referendum was not just about the economy but about increasing national sovereignty, I believe EFTA would tick that box too. That is why it is an option that also finds favour among many moderate leavers and it should not be dismissed out of hand by the Government. When we look back in 10 years’ time, we will not regret taking the time to get what was needed, but we will regret rushing to leave the European Union as quickly as possible to meet an arbitrary, self-imposed hard deadline.

10:22

[James Cartlidge (South Suffolk) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gapes. I will follow my hon. Friend the Member for East Renfrewshire (Paul Masterton) in being as brief as I can.

To my hon. Friend the Minister, I say that I, like most of my hon. Friends, want the Prime Minister to achieve a successful, bespoke deal, but the clock is ticking. To put it bluntly, levels of agreement are not optimal on the internal flank. I hope he can answer one question: if EFTA-EEA is such a bad idea, why are its four constituent countries among the richest and most successful on the face of the planet?

This is not project fear. We talk about hypothetical scenarios, such as what would happen if we left without a deal or under a soft or hard Brexit, but those countries are out there in the real world, not gazing at their navels, but negotiating trade deals and making a success of a trade bloc that we created with them in 1960. They have found a way to be sovereign countries, to deal with the huge behemoth of the European Union on their borders and to somehow retain that combination of prosperity, security and, yes, sovereignty.

Back in Westminster, we are in a hypothetical realm where we keep talking about all the possibilities that may emerge. If one were to be hypothetical and ask, “What deal could we possibly construct on which we could conceivably unite as a country?” it would have to do the following. It would have to please those on the Brexit wing by enabling us to negotiate our own trade deals from day one of leaving. EFTA does just that. For the Mayor of London, who wants us to stay in the single market, for the Scottish Parliament, which also wants us to stay in the single market, and for the many of us who think that that would be right for the City of London and services, we would have to stay in the single market. In EFTA-EEA, we stay in the single market. For everyone, there would have to be a control on unsustainable migration. In EFTA-EEA, we have the control that should migration surge again, article 112 and, importantly, article 113, which guarantees our right to negotiate free movement, would apply and have applied in practice in the real world.

[Vicky Ford (Chelmsford) (Con)]

The free movement issue is very sensitive. In the EFTA relationship, Liechtenstein has a cap on the total number of EU citizens it allows in each year. It is a much smaller country, but the principle is there.

[James Cartlidge]

Yes, the principle is there. The powers are there in black and white and they can be used unilaterally. There is simply no way to dispute that.

To return to the hypotheticals, from a Brexiteer point of view, we would want something that gives us visible signs of power back on day one. We would be out of fisheries, which is why Fishing for Leave supports membership of EFTA—it knows that next year, it could get power back for fisheries. We would be out of the common agricultural policy. We would be out of the serfdom of the ECJ and under the EFTA court.

I will finish by referring to the transition. Even as someone who campaigned for remain, I think the Government’s current proposal would mean a vassal transition where we had absolutely no control. To people in the Brexit camp, I say that surely the proposed transition, where we have literally no say in future laws, is far inferior to one where we go into EFTA next April, have powers back, and have the security of staying in the single market. That is the best transition, which would enable us to have a safe harbour to secure our long-term future, as other hon. Members have said.

A range of continental lagers are available, but if Carlsberg did an off-the-shelf, last-minute Brexit deal that pleased everybody, it would probably look an awful lot like EFTA-EEA.

10:26

[Mr Peter Bone (Wellingborough) (Con)]

It is nice for a leaver to make just a brief contribution—perhaps you have heard enough from leavers, Mr Gapes. I congratulate my hon. Friend the Member for Wimbledon (Stephen Hammond) on securing this important debate. It is a pleasure to follow my hon. Friend the Member for South Suffolk (James Cartlidge), who made a powerful case from his point of view in relation to EFTA.

My view is that we should get behind the Government. We on this side of the Chamber should certainly be supporting the Prime Minister and the Government. To say that this is a Brexit-dominated Government, when the Prime Minister, the Chancellor, the Deputy Prime Minister, the Home Secretary, and the excellent Minister were remainers, paints an unfair picture. I think the Government are working in the interests of all the British people.

The Government decided to delegate the decision about whether we remain in or out of the European Union to the British people. There was a massive democratic process and we had the leave result. We are leaving in 413 days, so as my hon. Friend the Member for South Suffolk said, the clock is ticking.

In the referendum, the British people voted to end free movement, not to spend billions and billions of pounds each year with the EU, and to make our own laws in our own country that will be judged by our own judges. Within all that, Parliament should debate what Brexit looks like—quite rightly—and this debate is part of that.

[Heidi Alexander (Lewisham East) (Lab)]

Will the hon. Gentleman give way?

[Mr Bone]

I cannot, because I have very little time.

It is right that the Government are saying, “Hang on. We’re the fifth biggest economy in the world. We want to make a bespoke deal.” The Brexit Secretary has described the deal as Canada plus plus plus, but he is really saying that it is a bespoke model. From that point of view, how can people object? We are in a unique situation. We already have a free trade arrangement with the European Union. It sells us £80 billion more of goods than we buy from it, so it is in its interest to have a deep and special relationship.

In conclusion, I hope the whole House will get behind the Government to achieve what must be in the British interest: a bespoke deal and a special relationship with the European Union. I urge my Conservative colleagues to stop carping at the Prime Minister, to get behind her and to support the Government, not vote against them. They should argue their case and let the Government take us out of the European Union in the best possible way in 413 days’ time.

10:30

[Peter Grant (Glenrothes) (SNP)]

I am grateful for the opportunity to begin the winding-up speeches. Scotland’s preferred option was not to leave the European Union at all. It is dangerous to conduct this debate on the basis that all the arguments have been lost. I sympathise with a great deal of what hon. Members have said today, but their starting point seems to be, “We have now lost the argument—we are in for a hard Brexit and for coming out of the customs union and the single market, but let’s see how much we can salvage.” It is not too late for the Government to come to their senses and decide not to leave the single market or the customs union.

It is important that we continue to compare the benefits and disadvantages of EFTA membership not with the hard Brexit that we are heading for, but with where we are now. As hon. Members have said, we had a referendum over membership of the European Union but nobody in the United Kingdom has ever voted in a referendum on the single market or the customs union, so none of us has the right to say that we know how people feel about our membership of them.

I must remind hon. Members of the likely economic impact. Some have decided that the economic forecasts are not worth the paper that they are written on. Presumably they think the billions of pounds it costs to run the Department that produces those forecasts are not worth it either, so I look forward to the Estimates debate in a few weeks’ time—I can think of a big saving to our spending on the Treasury. The Scottish Government’s paper “Scotland’s Place in Europe” indicates that over the 10 years after Brexit, GDP in Scotland is likely to fall by £11 billion a year and public spending is likely to fall by £3.7 billion a year, on top of any reduction imposed from Westminster. That is twice Scotland’s total expenditure on further and higher education, which demonstrates the scale of economic damage that we face.

The UK Government say that they have not done any impact analysis, but they have done analysis of the impact, which is not the same thing. I have not yet seen those papers in their Fort Knox establishment on Parliament Street, so I can only quote from what has already been put in the public domain. The Buzzfeed papers show that the Treasury think that at best we will see a 2% reduction in economic growth, even if we remain in the single market, and at worst we could face an 8% reduction, which would be a recession like none that we have ever seen or ever want to see. We are talking about a serious threat to the economic and social wellbeing of these islands.

I recognise that membership of EFTA—if we are allowed in, although it is still not guaranteed that the four existing members will want us to join—would not be as bad for us as falling off the cliff edge, but it would still be significantly worse than where we are now. I hope that all hon. Members who have argued for EFTA today will not accept that the argument about full membership of the single market or the customs union has been lost. EFTA countries are not in the customs union; we heard evidence from several witnesses in the Exiting the European Union Committee yesterday about what that means for Switzerland. In some ways, the Swiss position appears to be closest to what the Government want, because officially it does not include free movement of people, although in practice it pretty much does.

[Heidi Alexander]

rose—

[Peter Grant]

I will give way once, but I am conscious of time.

[Heidi Alexander]

I understand the note of caution that the hon. Gentleman articulates about EFTA, but I also understand that Scottish National party policy is to remain in the single market. If his party does not favour remaining in the European economic area by staying in EFTA, how does it propose to remain in the single market?

[Peter Grant]

As I said, our best option is to respect the wishes of the 62% not to be dragged out of the European Union, but if that option is taken off the table—

[Paul Masterton]

indicated dissent.

[Peter Grant]

I note that Scottish Conservatives want to pooh-pooh the idea that 62% of the population of Scotland can just be ignored. My concern about EFTA is not that I do not like what it offers, but that it does not offer nearly as much as we have now. In particular, it does not involve membership of the customs union.

Switzerland does not have what it regards as a hard border with the European Union. Apart from its border with Liechtenstein, it is completely surrounded by land borders with EU countries, but most people travelling in and out do not notice anything like a hard border. Nevertheless, it estimates that approximately 2% of vehicle traffic is stopped and searched. Applying that model to the only land border that the United Kingdom will have with the European Union would result in 200 stop-and-searches a day near the border on the island of Ireland. That is simply not acceptable, and it cannot be allowed to happen.

Even the most favourable—or least unfavourable—scenario for leaving the customs union is likely to create significant security problems in Ireland. It is not just about having a hard border. We have an agreement on all sides that there will be no infrastructure on the Irish border, but it is very difficult for somewhere inside the customs union to have a border with no infrastructure whatever with somewhere outside it. There will be significant repercussions for the whole of Ireland if the United Kingdom leaves the customs union.

[Kevin Hollinrake]

Will the hon. Gentleman give way on that point?

[Peter Grant]

I really do not have time.

Those repercussions are among the reasons—they are possibly the single most pressing reason—why we have to persuade the Government that they have got it wrong. The unilateral and politically motivated decision to leave the customs union was a mistake, but there is still time for it to be rectified. There is still time for the Government to accept that they got it wrong and that they do not have a referendum mandate to take us out of the customs union or the single market.

I was interested in the point made by the hon. Member for South Suffolk (James Cartlidge) that the four EFTA countries are among the wealthiest in the world by GDP per capita. It is not only EFTA countries that are in the top 15 or 16, and certainly above the United Kingdom; so are Luxembourg, Ireland, Sweden, Belgium, Finland and Denmark, none of which are in EFTA but all of which are in the single market. Membership of the single market and the customs union may be a factor, or it may be that all the countries I mentioned and all four EFTA countries have the status of being small, independent, modern European nations—perhaps that is what we should be looking at, but that is an argument for another day.

I must sound a final word of caution. Although hon. Members have referred favourably to the Norwegian and Swiss situations, we were told yesterday in the Exiting the European Union Committee about the Swiss People’s party, which is a bit like UKIP with a Swiss accent but is the biggest single party in the Swiss Parliament. It has initiated the process of calling a referendum—a popular initiative, as the Swiss constitution describes it—to extricate Switzerland from EFTA and pull out from agreements with the European Union. Although a lot of countries originally saw EFTA or the European economic area as part of an accession process to get from nowhere to full membership of the European Union, it appears that there is a big danger of the hard right in Switzerland treating EFTA as a way of cutting its links with the European Union. So let us be careful: we may think that the minority in this House who want a hard Brexit will be satisfied and let things lie if we somehow persuade the Government to go for EFTA, but it will not be long before they seek to follow the Swiss example. They will agitate for a referendum as they did before, not on leaving the European Union this time but on the hardest of all hard Brexits.

As I have said before, and as I think the vast majority of hon. Members believe, a hard Brexit would be economically and socially calamitous for the people of these islands. It is still not too late for the Government to give a guarantee that they will not go for that kind of Brexit. They should not simply say that they want to join EFTA, but go further and say that they want to remain in the single market and the customs union—not for two or three years after we leave the European Union, but for as long as we possibly can.

10:39

[Matthew Pennycook (Greenwich and Woolwich) (Lab)]

It is a pleasure to wind up for the Opposition and to see you in the Chair, Mr Gapes. I join other hon. Members in congratulating the hon. Member for Wimbledon (Stephen Hammond) on securing this debate and on the considered way in which he framed the issue.

The Labour party has continually made clear that we want to seek a deal with the European Union that secures all the benefits of the single market and the customs union and that involves no diminution of the EU-derived rights—employment rights and equality rights—health and safety standards, and environmental protections and standards that we currently enjoy.

Jobs and the economy must be the Government’s priorities in the next phase of the negotiations, so it is absolutely right that Parliament debates in detail the pros and cons of any and every means of potentially securing a departure from the EU that protects both. I echo what many hon. Members have said in the debate this morning: every option must be kept on the table.

It reflects poorly on the Government that Back Benchers have to bring Ministers to Westminster Hall and have only an hour to speak on issues of this importance. We should be debating the pros and cons of European Free Trade Association arrangements and other arrangements in great detail on the Floor of the main Chamber; that we are not doing so is a missed opportunity.

I very much welcome the attempt by the hon. Member for Wimbledon to convince the Conservative party to ditch the ideological baggage, and to drag with him the Government and the small group on the Government Benches who favour—for ideological reasons—the hardest of departures from the European Union.

There are misconceptions about EFTA, and they need to be challenged. We need to have an honest debate about what the trade-offs and the compromises involved in an EFTA arrangement, or other arrangements, would be. However, all options must be considered and, as other hon. Members have said, nothing should be taken off the table.

In the brief time I have available to me, I will sound a few notes of caution about the trade-offs when it comes to EFTA, or at least examine some of them. I will start with the transition period, because a number of different views have been expressed this morning about whether EFTA would apply in the transition or afterwards and about the variants that it might cover.

I fail to see how EFTA could work in terms of a transitional arrangement, and that is for two reasons. The first is that, as we have argued for some time, the Government must pursue transitional arrangements on the same basic terms as those that apply now, which includes membership of the single market and the customs union, and would involve the jurisdiction of the European Court of Justice. That is supported by businesses and trade unions, and—if people pay any attention to what the European Commission has been saying on the EU27, they will know this—it is also the only option that is available. I cannot see how EFTA, as a transitional vehicle, could be realistically negotiated.

Even more importantly, an EFTA transition would in a sense entail what the Government—and we agree with them on this—have explicitly sought to avoid. Businesses and individuals do not want two points of transition towards the end state. They do not want a situation whereby they would depart the EU and go on to EFTA terms, and then go on from EFTA terms to the final end state of a bespoke deal.

[James Cartlidge]

What the hon. Gentleman talks about as a transition is not really a transition; it is an extension of existing membership, and there is no point in trying to deny that. EFTA can be a transition in this sense—that we go into it, as others have said, as a safe harbour. However, he seems to be ruling out the idea that, once we are in EFTA, there would ever be any further change, when it would clearly be in our national interest to look at how we might, for example, strengthen co-decision making or consider divergence within parts of the single market. The point is getting to a safe position to do that. That is what a transition is—not an extension of our existing membership.

[Matthew Pennycook]

I disagree, because I do not see a transitional arrangement on those terms as an extension of membership; we would lose our voting rights and our representation in the European Parliament. However, that is the only transitional arrangement on offer, and the one that the hon. Gentleman is suggesting is not a serious possibility. Also, as I have said, it would involve two points of disruption for businesses and individuals. For that reason, we favour a transition on the same basic terms as now. However, if we are talking realistically, and we are talking about a post-transitional arrangement, EFTA membership is clearly something that the Government should consider.

I will just probe a bit of the argument that the hon. Member for Wimbledon made in terms of there being a range of viable options open to the UK within EFTA, each of which warrants consideration. It is difficult to see what would be gained by EFTA membership alone. I take the point that obtaining it would secure for us access to the EFTA free trade area and the four EFTA states, as well as participation in trade agreements with the 27 countries in the EU, but in no way would that make up for the loss of trade that would come from losing the 50 preferential trade deals that the EU has with third countries or the many other trade deals that it is negotiating. Moreover, EFTA membership alone would not secure for the UK preferential access to the EU internal market.

In the same way, it is difficult to see how the Swiss model, or a variant of it, would work for the UK. As hon. Members will know, Switzerland has only partial access to the EU’s internal market. We must also consider services, the future of which is integral to our country. I know that the hon. Gentleman has real concerns about them, and we both do, because of our constituencies. Services are covered only to a limited extent by the Swiss model. Crucially, Swiss bilateral agreements do not provide for cross-border access in financial services. So it is difficult to see how the Swiss arrangement would work for the UK, notwithstanding the issues that it has in terms of its sustainability or the length of time that it has taken to negotiate.

[Stephen Hammond]

The hon. Gentleman is, of course, laying out the range of options I said were available and making the point about all their pros and cons. However, I think it was pretty clear from my speech that I think that the EFTA/EEA arrangement, which is what I argued for consistently throughout my speech, is the option, one, that I prefer and, two, that the Government should look at.

[Matthew Pennycook]

In a sense, the hon. Gentleman reinforces my point, which is that the realistic debate that we should be having is about the EEA/EFTA option. I do not think that the other options are particularly practical or desirable, for a variety of reasons, so that option—the EEA/EFTA one—is what we should concentrate on.

When it comes to the EEA/EFTA model, the Opposition recognise that it undoubtedly has a range of advantages.

[Kevin Hollinrake]

Earlier in his remarks, the hon. Gentleman mentioned the customs union. Is it the Opposition’s policy that we must remain in the customs union?

[Matthew Pennycook]

The Opposition’s policy is that a full customs union with the EU remains on the table; it should be an option that we explore, and I will come to the reasons why.

Despite the advantages that EFTA provides, it also has some inherent limitations. One of the most serious, which we have to grapple with if we are going to seriously consider and debate the advantages of the EEA/EFTA model, is what it would mean for the border in Northern Ireland. Unless that model is complemented with a customs union or customs arrangement of some kind, I do not necessarily think that EFTA alone would solve the problem in Northern Ireland.

That is because the agreements that the EFTA members have struck with third countries involve the collective dropping of tariffs. I do not think that those agreements can be supplemented with a customs union or customs arrangement in a way that would solve the problem in Northern Ireland. Earlier, the right hon. Member for Meriden (Dame Caroline Spelman) mentioned agriculture. There are issues within EFTA where there is explicit freedom to diverge, which I think makes the Northern Ireland border situation complicated, and it is certainly not clear that it would be solved by straight-up EFTA membership.

In addition, there are the concerns that have been raised about freedom of movement and payments into the EU budget. Neither of those issues is insurmountable, but we need to have a really honest debate about how we would reconcile the concerns that were raised in the referendum, and that undoubtedly lay behind the vote in the referendum, and the economic conditions that are required in the country going forward.

There are also very practical reasons why the EEA/EFTA option could be challenging. It is clear to me that the majority of the legal opinion on this shows—Professor Baudenbacher would say this himself—that the UK ceases to be a member of the EEA when we leave the EU. We cease to be a contracting party; article 1.26 of the EEA agreement says that very clearly. It is not clear—this needs further explanation—whether we could seamlessly join EFTA in a way that allows us to remain a member of the EEA agreement continuously. As a number of hon. Members have said, there are also real questions about whether the EFTA states—in particular, Norway—would be happy to have us join.

[Stephen Hammond]

They would.

[Chuka Umunna]

They would.

[Matthew Pennycook]

Well, they might be. I think there is a range of opinion out there about it; I have spoken to a number of different people with different views. The hon. Member for Wimbledon said that he had spoken to the ambassador and the professor himself. I note the comments of the Norwegian Prime Minister in August last year, when she said that the UK joining EFTA, even for a temporary period, would be a “challenging and costly” undertaking. Again, those concerns are not insurmountable, but we need to grapple with how realistic this option is and, in particular, with whether EFTA’s institutions—especially its court—could cope with the volume of cases that would land in them if the UK was to join EFTA.

All of that speaks to a wider point, which is that the four EFTA economies are very different from the UK economy. The size of the EFTA countries and the nature of their economies make UK membership of EFTA a challenging prospect.

All of that needs to be debated, and it cannot be debated in an hour and a half in Westminster Hall. The EFTA option should not be taken off the table, but there are real reasons why the Labour party believes that a bespoke deal following a transitional arrangement on basic terms should be what we are aiming for, and therefore EEA/EFTA would not be our first preference. However, as I say, the key point is that that option should not be taken off the table. In the end, it is up to Parliament to decide, which is why it is so important that we have a meaningful vote—

[Mike Gapes (in the Chair)]

Is the hon. Member bringing his remarks to a conclusion?

[Matthew Pennycook]

I am.

The issue should be for Parliament to decide, and this option should not be taken off the table. The Government need to give serious consideration to it or at least to provide time for debates about the pros and cons to allow us to explore why—if they have—they have ruled it out.

10:49

[The Parliamentary Under-Secretary of State for Exiting the European Union (Mr Robin Walker)]

I start by congratulating my hon. Friend the Member for Wimbledon (Stephen Hammond) on securing this important debate on the European Free Trade Association, to which I am delighted to respond. I note that he beat our hon. Friend the Member for Eddisbury (Antoinette Sandbach) in securing this debate, but as my hon. Friend and colleague at DExEU, the Member for Wycombe (Mr Baker), said in the House on 1 February, a number of colleagues have suggested EFTA membership as a possible option, and it is important that we debate it.

Although we recognise the benefits of ensuring continuity in our relationships with the EFTA states, we do not plan to seek membership of EFTA, for four key reasons. First, EFTA membership in and of itself does not deliver any market access to the EU. As my hon. Friend the Member for Wimbledon pointed out, there are some misconceptions. It is important to delineate the difference between the EFTA agreement and the EEA. EFTA is a trading bloc between four European countries: Switzerland, Norway, Iceland and Liechtenstein. Three of them participate in the EU’s single market through the EEA agreement, while Switzerland participates in some areas through a series of bilateral arrangements with the EU. As such, joining EFTA does not say anything about our future economic partnership with the EU.

Those calling for us to join the EFTA need to be more specific, as my hon. Friend was, about whether they mean joining the EEA, or attempting to copy the Swiss agreement, or negotiating a different bespoke agreement. The Prime Minister has been clear that participation in the EEA agreement would not work for the UK because it would not deliver on the British people’s desire to have more direct control over the decisions that affect their daily lives, and it would mean accepting the continued free movement of people, which both the Conservative and Labour manifestos pledged to end at the last election. Switzerland, on the other hand, has a patchwork of agreements with the EU that fall short of the ambitious economic partnership we are seeking. Neither model strikes the balance of democratic control and mutual market access we want for our future partnership with the EU.

Secondly, our ambition as a global trading nation goes beyond the scope of EFTA’s existing free trade agreements with third countries. Leaving the EU offers us an opportunity to forge a new role for ourselves in the world, to negotiate our own trade agreements and to be a positive and powerful force for free trade. Alongside new FTAs, we are also committed to achieving continuity in our existing trade and investment relationships with third countries by transitioning the EU’s free trade agreements. It is worth noting that EFTA’s network of preferential trading arrangements falls short of our ambitions.

Thirdly, EFTA membership means accepting free movement between EFTA members—that principle is underpinned through the legal framework of the EFTA convention. While we do not regard the referendum result as a vote to pull up the drawbridge, it must be a priority to gain control of the numbers of people who come here from Europe.

Finally, while we want to maintain our deep and historic relationships with EFTA states, the UK is in many ways different from those countries, as the hon. Members for Greenwich and Woolwich (Matthew Pennycook) and for Glenrothes (Peter Grant) pointed out. Our population is around 65 million, while the EFTA states together make up roughly 14 million people. In 2015, the EFTA bloc’s collective GDP amounted to £710 billion as compared with the UK’s £1.9 trillion. The UK’s participation in EFTA would fundamentally change the nature of that group and would not be an appropriate model for our future relationship with the EU or those countries.

[Antoinette Sandbach]

Some have proposed that EFTA should be a plan B in the event that the Government do not achieve the ambitions they are outlining, instead of WTO rules. What does the Minister say to that?

[Mr Walker]

We are absolutely focused on achieving a deep partnership between the UK and EU. Of course we need to look at our contingency plans, and I am sure Ministers will take note of this debate in that regard, but we want to focus on achieving a partnership that in many ways goes beyond the EFTA arrangements we have discussed.

[James Cartlidge]

Will the Minister give way?

[Mr Walker]

No, I need to make a little progress because I have got quite a lot to try to cover.

Membership of EFTA alone does not automatically guarantee UK access to the EU single market, and EFTA states have the different trading relationships I have described. In this debate, most people have spoken about the EEA and EFTA. The EEA, which is sometimes referred to as the Norway model, would mean the UK having to adopt automatically and in their entirety new EU rules over which we would have little influence and no vote. As the Prime Minister has said, such a loss of democratic control could not work for the British people. It would also involve continuing to pay substantially into the EU budget.

[Chuka Umunna]

Does the Minister not accept that if we are to do the free trade agreement that he and his colleagues in government keep talking about, we are going to have to comply with European standards anyway? We have much more chance of having some influence—albeit, I accept, not a vote—if we do so through EFTA and EEA membership. The hon. Member for Wimbledon (Stephen Hammond) has been clear he is arguing for that.

[Mr Walker]

The Government are ambitious about the extent of the trade agreement we can do with the EU. The EU has a number of trade agreements with other countries where there is mutual recognition and regulatory alignment, but not the absolute harmonisation of rules. I do not accept the premise of the hon. Gentleman’s argument.

I will not be able to cover all the comments, so I want to focus a little more on international trade. Members have asked why we do not plan to rejoin EFTA as a way of continuing our trading relationships with its members and trading with the wider world through the adoption of its existing free trade agreements. As I have already stated, EFTA has a network of 27 free trade agreements as compared with the EU’s 40 FTAs. While many of those agreements significantly overlap, EFTA agreements still focus on traditional areas of market access and therefore tend to be less comprehensive and more goods-focused than those of the EU. It is also notable that some EFTA FTAs specifically exclude trade remedies that the UK may seek to have as part of our independent trade policy. The UK is in many ways different from those countries.

[Paul Masterton]

Will the Minister give way?

[Mr Walker]

I will give way for the last time.

[Paul Masterton]

Is the point not that by joining EFTA, we can roll into the existing EFTA trade agreements and agree a new bilateral trade deal at the same time? We would be protected while striking out our own trade deal.

[Mr Walker]

My hon. Friend makes an interesting point. It is certainly true that a number of the EFTA states have those bilateral arrangements, but it is important to note that even if EFTA members were to welcome us back—as the hon. Member for Glenrothes pointed out, that is not a certainty—we would not have immediate or automatic access to their 27 FTAs. Our entry into each one would need to be negotiated individually with the third countries involved. That process would take time, with no guarantee of success. EFTA is not an off-the-shelf model that would deliver ready-made trade deals, as some have suggested. Instead, as I said earlier, leaving the EU offers us an opportunity to forge a new role for ourselves in the world: to negotiate our own trade agreements and to be a positive and powerful force for free trade. As Members know, we are committed to delivering continuity in the EU’s existing trade relationships with third countries.

[Ian Murray]

Will the Minister give way?

[Mr Walker]

I will not right now. We want continuity, rather than the replacing of agreements with their mostly shallower EFTA counterparts. We are already in discussions with third countries over how to put the arrangements in place upon exit, and I will come back to that point.

[Ian Murray]

Will the Minister give way?

[Mr Walker]

I cannot give way right now because I have to cover a few more points.

Another important drawback of EFTA membership is that it requires free movement between its members. A number of Members have touched on that. It is true that Liechtenstein has a derogation from the principle of free movement of people under the EEA, but Members will agree that the UK is in many respects different from Liechtenstein, which is a country with a population numbering less than most of our constituencies—in 2016, the population totalled some 37,000. It is also worth noting that in 2016 more than a third of Liechtenstein’s population were not Liechtenstein citizens.

We of course want the UK to remain an open and tolerant country. It is important to note that the Prime Minister has written to EFTA citizens and EU citizens to assure them that we want to reach agreements that protect their right to achieve settled status in the UK.

Finally, I reiterate that there can be no question of our ties of friendship with our EFTA friends and neighbours, nor of our commitment to them. Taken together, the EFTA bloc of states is our third largest export partner in goods and services after the EU and the USA—that is larger than India and China combined. We receive 5% of our imports by value from them, making EFTA our fourth largest import partner. Norway and Iceland were also founding members of NATO. I reassure Members that we are seeking to maintain our excellent relations with EFTA states, with whom we have long-standing cultural and economic ties, as well as crucial trading relations. The Prime Minister wrote specifically to EFTA nations.

I do not have a great deal of time to go into the implementation period, but it is important to note, as the hon. Member for Greenwich and Woolwich said, that we are seeking only one set of changes. It is crucial that business does not face two sets of changes. With that, I give my hon. Friend the Member for Wimbledon the floor for a chance to respond.

10:59

[Stephen Hammond]

I thank the Minister for his response. Like my hon. Friend the Member for Wellingborough (Mr Bone), I of course support the Government’s ambition to have a bespoke deal. Nothing I have set out this morning would in any way prevent that. The Minister, whom I regard as a thoughtful politician, will understand that I am disappointed by his response. Although this Chamber has had the chance to consider the motion, the feeling I detect from the Chamber is that the whole House would like to have a chance to reflect on the matter. I therefore say to the Minister that I have decided to provide that by tabling later today a number of amendments to the Trade Bill to be debated on Report. That will give the whole House the opportunity to discuss EFTA on the Floor of the House.

Question put and agreed to.

Resolved,

That this House has considered the European Free Trade Association.