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The Parliamentary Under-Secretary of State for Exiting the European Union (Suella Fernandes)
Thank you, Mr Sharma, for your chairmanship of today’s very interesting, fascinating and useful debate. I am grateful to my hon. Friend the Member for Eddisbury (Antoinette Sandbach) for raising this issue and securing a debate on the alternatives to a no-deal outcome in the EU negotiations. She has raised this topic on many occasions in the House, both in Westminster Hall and in the main Chamber. I gladly respond to her points, and those raised by many hon. Friends and hon. Members this morning.
My hon. Friend raised a number of ways in which the UK could leave the EU, including becoming a member of EFTA, having a Canadian-style deal with the EU, the Government’s preferred objective of creating a deep and special partnership with the EU, and the very unlikely scenario where we leave the EU without a deal. The Government are confident that we can negotiate a close relationship with the EU that is mutually beneficial to the UK and the EU. Alternatives, such as EFTA and the EU-Canada comprehensive economic and trade agreement, are not outcomes that the UK is pursuing. As the Prime Minister set out in her Florence speech, we want to
“be creative as well as practical in designing an ambitious economic partnership”
that works for both the UK and the EU. We believe that that is a reasonable expectation.
Stephen Gethins
Does the Minister support the implementation period, or does she back the letter, published this morning by her colleagues, that said that the implementation period should be based on WTO principles?
Suella Fernandes
The hon. Gentleman pre-empts my comments. The implementation period has been set out and explained in considerable detail by the Secretary of State, and I will come to it later. If he will bear with me, I will deal with his point in my later comments.
We believe that it is reasonable to expect that we can secure an ambitious new economic partnership with the EU, because we start from an unprecedented position: one of convergence. We have the same rules, regulations and values as the EU. That starting point is unmatched by any of the other options explored today—a vital distinction, which makes the prospects of securing a mutually beneficial agreement high. That is why the Government continue to seek that new deep and special partnership with the EU.
Given that much of this morning’s debate has centred on the scenario where the UK leaves the EU without a deal, it is worth setting out the Government’s position on that. As the Secretary of State and my colleagues have clearly explained, the Government are not aiming for—nor do we want—a no-deal outcome. We want to secure a new free trade agreement with the European Union that benefits both parties, our citizens and our economies, and that respects the result of the EU referendum.
There are grounds for optimism that that is eminently possible. We have achieved considerable success in the first phase of the negotiations. We have secured joint agreement on issues previously thought to be insoluble. I am confident that we can build on that success with an agreement about the implementation period, as set out recently by the Secretary of State in his speech at Teesside, and agree on the future relationship with the EU.
As my departmental colleague, my hon. Friend the Member for Wycombe (Mr Baker), the Under-Secretary of State, said in response to a question asked by my hon. Friend the Member for Eddisbury in the House:
“We approach the negotiations anticipating success and a good deal for…the UK”.—[Official Report, 1 February 2018; Vol. 635, c. 957.]
However, let me be clear: although it is in the interests of both the UK and the EU to secure that good deal, we have a duty to plan for all outcomes, including one where no agreement is reached. The Government continue to prepare responsibly for a range of results from the negotiation, including the unlikely scenario in which no agreement can be reached. In reflection of those preparations, the Treasury has already given Departments nearly £700 million to prepare for Brexit, and is making an additional £3 billion of funding available over the next two years to ensure that we are prepared for every outcome.
Stephen Hammond (Wimbledon) (Con)
The Minister remarked that the Government are, quite rightly, looking at all potential outcomes. In the unlikely scenario that there is no deal, the Government must surely prepare for what would ameliorate the economic damage that has been shown by the Government’s economic impact studies. Would it not be sensible to make sure that we have preparations for other solutions as well, one of which could be EFTA-EEA?
Suella Fernandes
As I will come on to, the Government do not think that the EFTA-EEA option meets the objectives that my hon. Friend sets out, because it falls short of what we are seeking in our new arrangement with the EU on many fronts. I will elaborate on that in a few moments.
The first alternative to a no-deal scenario, and the Government’s preferred outcome, is a new settlement with the EU, as set out by the Prime Minister in her Lancaster House and Florence speeches. As she explained, we seek
“a new framework that allows for a close economic partnership”
between the two parties and that honours the instruction of the British people to take back control of our laws, borders and money.
As an existing member state, we share fundamental beliefs in fair competition, consumer rights and strong regulatory standards. Our position as the EU’s largest trading partner means that finding a meaningful deal along those lines is in both our interests. As my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) pointed out, the current trade deficit between the UK and the EU means that tariff-free trade benefits not only UK businesses and citizens, but EU businesses and employees who benefit from cross-channel commerce.
Antoinette Sandbach
Will the Minister explain what the Government’s approach is towards the service sector and non-tariff barriers?
Suella Fernandes
As my hon. Friend rightly pointed out, 80% of the UK economy is based on services, so it is important that we seek an agreement that will further enhance the possibility for our services to be exchanged, and for collaboration to continue. Reducing non-tariff barriers is, of course, a priority in any agreement that we seek with the EU, and is something I believe would be possible.
We will agree a comprehensive economic partnership, underpinned by high standards and a practical approach to regulation, that ensures continued trade and prosperity between the UK and the EU, based on mutual recognition. Again, the Secretary of State set that out in his speech yesterday. That partnership will aim for as frictionless as possible trade between the parties and will ensure access to each other’s markets, so that our consumers and businesses can benefit.
On security, the Prime Minister said last week that we are proposing a new partnership on future security, law enforcement and criminal justice co-operation—a strategic agreement treaty that will allow us to work together with the EU to promote our shared interests globally. That new partnership is ambitious and will not only reflect our history and the practical benefits of co-operation in tackling shared threats, but demonstrate the UK’s genuine commitment to maintaining a secure and prosperous Europe.
We are not pursuing EEA membership or aiming simply to copy the Canada-EU free trade agreement. The Norway option is not for the UK. We seek a collaboration on trade and security. We want to enable control over migration, autonomy over our laws and regulations, and the freedom to implement our own independent trade policy with the rest of the world. Only the deal that this Government are aiming for strikes that balance, which is why that is the best outcome for the UK and the EU.
As part of the deal between the EU and the UK, we are seeking a strictly time-limited implementation period.
Antoinette Sandbach
The Minister seeks to rule out a Norway option as not satisfactory. Will she also rule out a WTO option?
Suella Fernandes
We are not working towards a no-deal scenario, if that is what my hon. Friend is implying. As I have set out just now, we want an agreement based on tariff-free access, reducing our non-tariff barriers and with the ability to strike our own free trade agreements, but it is clear that we are a founding member of the WTO and plan to take up our seat at that organisation in due course.
Stephen Kinnock
The Minister has set out all the reasons why the Norway option does not work, but has also said that the UK wants collaboration on trade and security; access for services, which are a vital part of the economy; the ability to strike our own free trade agreements; and no ECJ jurisdiction. The Norway option ticks every one of those boxes.
Suella Fernandes
I disagree with the hon. Gentleman because Norway, although part of the EEA and EFTA, does not have much say on rules and regulations that come to it through the EEA agreement.
Suella Fernandes
One last time—I am running out of time and need to finish my comments.
Vicky Ford
Norway does have a say on rules and regulations. It sits in various standard-making bodies, for example, and contributes to legislation. It does not have a full vote, but then we are leaving the single market so we will need to have a new relationship with that single market. It gives market access, which is, as the Minister has said, so attractive. Will she again consider that that may be worth investigating—perhaps not in its entirety, but elements could be of interest?
Suella Fernandes
Norway does not have a seat in the European Parliament. It does not have a vote on whether regulations coming through the EEA agreement apply to it or not. It generally has to follow those obligations in line with its obligations under the EEA agreement. To diverge from that agreement would be a breach and would therefore lead to questions about its membership and subscription to that agreement. That is a fundamental point that makes membership of the EEA and the Norway option not attractive for the UK.
In response to calls from business, the implementation period is there to benefit businesses and individuals, so that they avoid the need for two sets of changes. It will also give them more time to adjust to the new future partnership.
Suella Fernandes
I will not, unfortunately. I have only six minutes and I have quite a lot to get through. I am sorry; I cannot.
The implementation period will also ensure that businesses have time to adapt to the new relationship between the UK and the EU. Crucially, only under a deal with the EU and the UK can this essential period take shape. None of the alternatives suggested in today’s debate can offer that level of continuity and clarity to businesses and citizens in the short term. That is why the deal that the Government are seeking is the best alternative to a no deal and is an alternative that we are confident of securing.
On EFTA—
Paul Blomfield
Will the Minister give way? There is a tradition of accepting an intervention from a shadow Minister.
Suella Fernandes
I must continue because I do not have much time, and EFTA has been a big issue in this debate. I will give way if I have time after my comments—I hope the hon. Gentleman will have patience with me.
Several hon. Members have raised EFTA membership today as the main alternative. Although we recognise the benefits of ensuring continuity in our relationships with the EFTA states, we have no plans to seek membership of the EFTA agreement for four key reasons.
First, EFTA is a trading bloc of four countries. Membership of EFTA does not in itself deliver any market access to the EU. Norway, Iceland and Liechtenstein effectively participate in the EU single market by virtue of the EEA agreement. That would not deliver more direct control over decisions affecting the UK, nor would it deliver control over migration, which is a key aspect of our leaving the EU.
Switzerland participates in some areas of the single market through a series of bilateral agreements with the EU, but many of those do not cover the areas in which the UK has interests. In any case, the Government have made clear on a number of occasions that we are not pursuing an off-the-shelf arrangement; we are not copying and pasting other agreements. We are seeking a particular bespoke agreement relevant to the UK’s economy. The model I have been discussing does not strike the right balance on democratic control and mutual market access that we want in 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. EFTA’s FTAs are not suited to the size and type of the economy in Britain. They are not with the larger economies of the world—countries and economies with whom we would wish to be pursuing new economic partnerships. They are not in the sectors where our economy has strengths, which are areas in which we would want to pursue new agreements. Leaving the EU offers the opportunity to negotiate our own free trade agreements and to be a positive and powerful force for free trade in the world.
It is also worth mentioning that membership of EFTA would not be the quick and easy solution that some here have argued. Even if EFTA members were to welcome us back into EFTA, 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.
Thirdly, membership of EFTA means accepting free movement between EFTA member countries, as the EFTA convention provides for free movement of EFTA nationals. Liechtenstein has been raised as a derogation, but it is not a comparable example. Liechtenstein is a country with a population that numbers less than that in almost every constituency in the UK, at 37,000. It is very difficult to see how the example of Liechtenstein can be applied to the UK, with its population of 65 million.
Finally, although we want to maintain our deep and historic relationships with the EFTA states, the UK is in many ways different from those countries. The EFTA states have a combined population of 14 million people, compared with our population of 65 million. The EFTA bloc’s combined GDP in 2015 was around £710 billion, in comparison with the UK’s £1.9 trillion. The UK’s participation in EFTA would fundamentally change the nature of that group.
Mr Virendra Sharma (in the Chair)
Minister, would you bring your remarks to a close?
Suella Fernandes
I note your comments, Mr Sharma. I thank my hon. Friend the Member for Eddisbury for raising this issue for debate today.