The Financial Secretary to the Treasury (Mel Stride)
I am delighted to open the second day of this very important debate. At the outset I want to set out the status of our negotiations and reiterate this Government’s vision for a future economic partnership with the EU. I will in particular focus on the important issue of financial services within any future trade agreement, and remind the House that we have been very clear that the decision to leave the EU does not mean some loveless divorce or division. There is indeed no need for this, given that the economies of the UK and the EU are inextricably connected, and given our long and shared history of common values and shared challenges, and I have no doubt that any future economic partnership must recognise and reflect these facts.
We stand at the threshold of a new beginning with our European partners, and a renewal of our commitment to ensure the continued prosperity and stability of both the UK and the EU. Before I turn to our future economic partnership with Europe, it is important to set out just how far we have come, and what awaits us as we progress our discussions.
The agreement in December was a significant step forward. The joint report issued by the UK and the EU set out progress on three areas: a fair deal on citizens’ rights that enables families who have built their lives together in the EU and the UK to stay together; a financial settlement that honours the commitments we undertook as members of the EU, as we said we would; and an agreement in relation to Northern Ireland. We are confident that this collaborative spirit, which led to the December agreement, will endure as we take our approach forward into the next phase, including at the European Council next week.
Mr Chris Leslie (Nottingham East) (Lab/Co-op)
On this concept of a collaborative, open spirit, trying to find solutions and securing frictionless trade, the Minister will have seen today’s Sky News report that the Government are insisting on non-disclosure agreements with a variety of industry groups, transport bodies, hauliers and others in trying to find their way through. Why are the Government insisting on gagging business organisations in that way?
Mel Stride
It is standard practice for the Government to use non-disclosure agreements, and delivering a seamless post-Brexit border is a top priority for us. Non-disclosure agreements with key delivery partners for the border are crucial to the open exchange of information and opinion on options and scenarios, and they ensure that all planning negotiations and decisions are based on what is achievable and most appropriate for the UK to ensure a safe and secure border.
In respect of our future trading relationship, draft EU negotiating guidelines have been circulated to the EU for comment, and we expect final guidelines to be formally adopted next week at the March European Council. We trust that these will provide the flexibility to allow the EU to think creatively about our future relationship, and, looking ahead, we are confident that we will conclude a deal on the entire withdrawal agreement by the European Council in October. This confidence is not just grounded in our mutual interest of striking a deal, but also because we enter these negotiations from a point of striking similarity: our rules, regulations, and commitment to free trade and high standards are the same. So, as we build this new relationship, we are doing so from a common starting point.
The next milestone in the negotiations will be an agreement of an implementation period. We saw the implementation period prioritised in the Chancellor’s Mansion House speech and the Prime Minister’s Florence speech, alongside a frictionless customs arrangement and a comprehensive agreement on trade in goods and services. The implementation period is the essential first step to ensure that we can all experience an orderly exit from the EU, plan accordingly, and enjoy certainty during the transition.
John Redwood (Wokingham) (Con)
How can we possibly agree an implementation period when at the moment we do not have anything to implement?
Mel Stride
While being ingenious in his use of language, my right hon. Friend will I am sure agree with me that the purpose of the implementation period is to make sure we have a period of certainty for business, so that when we end up with our final withdrawal agreement we only have one set of changes to make from where we are now to where we will be at that point. That is the purpose of the implementation period.
Anna Soubry (Broxtowe) (Con)
I do not want to alarm you, Mr Deputy Speaker, but I completely agree with my right hon. Friend the Member for Wokingham (John Redwood), which may be a first in this sort of debate—[Interruption.] He is in a state of high shock. In all seriousness, this is an implementation period—the clue is in the name—but many of us fear that by October we will have achieved nothing more than a woolly set of heads of agreement and that there will be little to implement. How does the Minister see things panning out in reality?
Mel Stride
Whether it is a transition period, an implementation period or whatever period one seeks to term it, the important thing is to understand what the period is about, and we have always been clear about that. It is a period in which we will remain closely involved—similar to how we are at the moment—so that when we move into the post-transition or implementation period we have undergone just one set of changes and that we have certainty in the interim for British businesses, which is exactly what they have been telling us they would like.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
I repeat these words:
“I propose that we aim for a trade agreement covering all sectors and with zero tariffs on goods. Like other free trade agreements, it should address services.”
Those are the words used by President Tusk in introducing the guidelines, which seem to accept the principle that there should be a comprehensive free trade agreement between the United Kingdom and the EU.
Mel Stride
My hon. Friend makes an important point and, as I will say later in my speech, there is every reason to move towards a comprehensive free trade agreement covering not just goods, but services.
Vicky Ford (Chelmsford) (Con)
Given that nearly half of our trade is with the EU and that 40% of that trade is in services, does the Minister agree that the level of services coverage in, for example, CETA is not deep enough or broad enough to recognise adequately the mutual trade between the UK and the EU in services?
Mel Stride
My hon. Friend raises an important point. We will be seeking a unique deal for our country that recognises the prime importance of financial services both to our country and to the European Union and of the provision of competitive finance to the EU’s businesses and consumers. She mentioned CETA, and the relevant point there is that the negotiations, which were led by Michel Barnier, recognised the importance of attempting to include areas such as financial services, which is exactly what we will seek in the negotiations that will now follow.
We have the reassurance that the UK and the EU both issued a published text on the approach to the implementation period that reflects the significant common ground between us. The text would codify an implementation period that preserves the current status quo for business and consumers, is time-limited but also provides a sufficient window for the EU and UK to put new processes and systems in place, and ensures continuity in the application of international agreements. As a third country, the UK will have the ability to use the period to negotiate and sign new trade deals, while reflecting the fact that we cannot bring these agreements into legal effect until after the end of the period. We will also introduce a new registration scheme for EU citizens arriving post-Brexit but during the implementation period, when EU citizens should be able to continue to visit, live and work in the UK as they do now.
Peter Grant (Glenrothes) (SNP)
The Minister has referred to the potential opportunities to negotiate new trade deals after we leave the European Union, and one of his colleagues has been keen to big up the prospect of the riches to be had from that. Can the Minister name any country in the world that has indicated it would be more likely to give a beneficial trade deal to the United Kingdom on our own than it would be to negotiate a deal with the world’s biggest single internal market?
Mel Stride
What I can tell the hon. Gentleman is that a large number of trade missions have been led by the Department for International Trade and its Secretary of State. We have had extremely encouraging discussions with a large number of important potential future trading partners with whom we may be seeking free trade agreements. As I have said, we will be able to negotiate deals within the implementation period, although they will not come into effect until we are beyond that point.
Rachel Maclean (Redditch) (Con)
Is the Minister aware of the article on the front page of The Times today, which says that Brussels has now agreed that Britain can sign free trade deals without the approval of the European Union? Will he update the House on the status of the situation? What does it mean for our free trade policy?
Mel Stride
I believe that my hon. Friend is right. I certainly read that article this morning, and if what it says is the case, that would be good and sensible news, because it would be entirely logical that we should be in a position to go out and negotiate free trade agreements during any implementation period, although we respect the fact that the deals would not be switched on until we were beyond that point.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
As a part of the customs union, we have trade deals with 50-odd countries across the world, and I understand that they are worth some £140-odd billion per annum in UK trade exports. Will the priority during the implementation period be to renegotiate and sign deals with all those countries with which we currently have a trade deal? We know that some of them want to renegotiate the terms and want greater access to UK markets as a result. How many of those deals are we going to be able to renegotiate and sign before we actually leave the European Union?
Mel Stride
I reassure the hon. Gentleman that it is an absolute priority for the Government to ensure the consistency and continuity of the existing arrangements as they pertain between the European Union and other countries. I see no reason why we should not benefit from those arrangements, just as those countries will indeed benefit from arrangements with us as we go forward.
We have proposed practical solutions to help deliver a smooth departure from the EU. One such solution is the introduction of a joint committee to resolve issues or disputes that may arise during the implementation period. That approach is a common feature of international trade agreements. The joint committee would, for example, allow the UK to raise concerns regarding new laws that might be harmful to our national interest. We will also continue to discuss our involvement in relevant bodies as a third country during the period to ensure that EU rules and regulations continue to operate coherently.
It is in the interests of both the UK and EU to agree the precise terms of the implementation period as quickly as possible. We are close to delivering that, and we expect it to be formalised at the European Council meeting next week. The implementation period is key to forging the best possible future relationship, giving businesses and Government the time and certainty to plan for Brexit, and preparing the UK for its status as an independent trading nation. It will be a bridge from where we are now to where we want to be in the future—on exit, on day one, and beyond.
Looking further forward, it is crucial that talks progress so that we can agree the terms of our future relationship with the EU. We are now moving at pace to set the parameters of an economic partnership. As a Treasury Minister, I am particularly focused on how our economies will interact and grow together. As the Prime Minister said in her speech on 2 March, the UK is seeking the broadest and deepest possible agreement that covers more sectors and co-operates more fully than any other free trade agreement. A key component of any future agreement should be the inclusion of services, particularly financial services.
Jonathan Edwards
The Minister is being extremely generous in taking interventions. Taking him back to the implementation period and the negotiation of trade deals, will the priority be renegotiating the trade deals that we already have with all these third countries via the customs union or negotiating new trade deals with countries such as the United States and China?
Mel Stride
The hon. Gentleman will understand that both are an extremely high priority. We will be pursuing both avenues vigorously.
As my right hon. Friend the Chancellor made clear in his Canary Wharf speech last week, financial services is a sector that calls for close cross-border collaboration. The Chancellor also reiterated that it is simply not credible to suggest that a future deal could not include financial services. It is in the interests of both parties to ensure that the EU can continue to access and enjoy the significant benefits afforded by our financial services hub, because it is a regionally and globally significant asset, serving our continent and beyond, and near-impossible to replicate.
The UK can claim excellence in many areas, but in trade in financial services we are truly the global leader. We manage €1.5 trillion of assets on behalf of EU clients, and 60% of all EU capital markets activity is conducted here in the United Kingdom. Around two thirds of debt and equity capital raised by EU corporates is facilitated by banks right here in the UK. The huge economies of scale have led to London’s dominant position in EU financial services. As the Chancellor made very clear last week, we should be under no illusions about the significant costs if this highly efficient shared market is fragmented—costs that will ultimately fall to consumers and companies right across Europe.
Robert Neill (Bromley and Chislehurst) (Con)
My right hon. Friend is making a very important point. As the Chancellor set out, those costs are many billions of pounds. One example is the proposed relocation of clearing houses, with an effective cost of some £25 billion a year. Does my right hon. Friend agree in addition that it is critical to have continuity for the legal instruments that underpin financial services, and that continuity of access for legal services must therefore be inextricably linked?
Mel Stride
My hon. Friend raises an important point about the significance of financial services, not just to us but to our European partners. On his specific point about regulatory continuity, we are considering the detail of that at the moment. We will certainly look at the prospect of returning to the matter on Report of the relevant Bill.
The UK stands ready to engage on a future trade agreement—one that includes financial services. Our overarching vision is for an economic partnership—including a future trade agreement—that delivers the maximum possible benefits for both our economies in all sectors, respects the integrity of each other’s institutions and seeks to strengthen, not weaken, the prosperity of Europe as a whole. Despite that, some still question the possibility of reaching such an agreement or insist that a trade deal cannot include financial services. The Chancellor addressed those sceptics in his speech last week, when he said that
“every trade deal the EU has ever done has been unique”.
The existing models do not represent the best way forward; nor do they provide a useful precedent to form the basis of any future agreement. Joining the EEA would not give the UK enough control, and a CETA-style deal would present too low a level of market access. The EU and the UK come to the negotiating table from the unique position of having the same rules and regulations on day one, not to mention our deeply interconnected economies. Unlike when other countries negotiate free trade agreements, this is not about aligning two totally different systems. Any new trading agreement should reflect the starting point of deep and historic convergence. We understand that, over time, there will be points of inevitable divergence, so we recognise that any future agreement should set out a clear approach to that aspect.
Our country seeks the deepest and broadest agreement possible—a bold economic partnership that is of greater scope and ambition than any comparable arrangement in history. The ambition of our vision reflects the scale of our mutual interest, our shared history and all that we can achieve together as good friends and trusted neighbours. Leaving the European Union represents an opportunity to chart a prosperous future. Along with my colleagues in Government, I have the greatest faith in our country and in our ability to work with others to achieve a deal that provides and endures for us all.
The Parliamentary Under-Secretary of State for Exiting the European Union (Mr Steve Baker)
I am grateful for the opportunity to respond to today’s debate, and I thank all right hon. and hon. Members who have taken part. I have very much enjoyed closely following the debate and the valuable contributions that have been made, and I am sorry that I will not be able to acknowledge them all in the eight minutes that remain.
I want to acknowledge the range of advice that the Government have been given, from my right hon. Friend the Member for Wokingham (John Redwood), who made a strong case for no deal, to my right hon. Friend the Member for Broxtowe (Anna Soubry), who made a strong argument for the customs union and EFTA, to which I will return in a moment. I was also grateful to my hon. Friend the Member for Clacton (Giles Watling) for representing his constituents by supporting the Prime Minister’s centre ground position.
The Prime Minister has been very clear that the UK will leave the EU on 29 March 2019, a date that is fixed as a matter of international and UK law under the article 50 process. That position respects the vote of the people in the referendum on 23 June 2016 to leave the EU, and there will not be a second referendum. As the Prime Minister set out in her Mansion House speech, our decision to leave the EU does not mark an ending; it marks a new beginning for our relationship with our European allies. We want the closest possible partnership. It is pragmatic common sense that we should work together to deliver the best outcome for both sides, and that is what we are doing.
I want to take a little time to talk about some of the solutions that have been proposed in relation to off-the-shelf models. As we have emphasised, we do not want an off-the-shelf solution or an existing model; we want the greatest possible tariff-free and barrier-free trade with our European neighbours, as well as to negotiate our own free trade agreements around the world, particularly in relation to our comparative advantage in services.
We want to ensure that UK companies have the maximum freedom to trade with and operate in European markets, and we want to let European businesses do the same in the UK. But we have always said that we are not looking for a Norway-style deal or a Canada-style deal. There is no point starting from scratch as we build our new relationship, because, unlike a country such as Canada, we start from the position of already having the same rules and regulations as the EU. Seeking a Norway-style agreement based on participation in the EEA agreement would not pass the first test that the Prime Minister set out for our future economic partnership with the EU. It would deliver control of neither our borders, nor our laws.
On borders, remaining in the EEA agreement would mean that we had to continue to accept all four freedoms of the single market, including freedom of movement. On laws, continued participation in the EEA agreement would mean the UK having to adopt at home, automatically and in their entirety, new EU rules, over which in future we will have little influence and no vote. This would not deliver the British people’s desire to have more direct control over the decisions that affect their daily lives.
Membership of EFTA, in and of itself, does not deliver any market access to the EU; it is a trading bloc between four European countries, Switzerland, Norway, Iceland and Liechtenstein. Three of those countries participate in the EU’s single market through the EEA agreement, while Switzerland participates in some areas through a series of bilateral agreements with the EU. Therefore, joining EFTA does not say anything about our future economic partnership with the EU. Although we want to maintain our deep and historical relationships with the EFTA states, the UK is in many ways different from those countries. Our population is about 65 million, whereas the EFTA states together comprise about 14 million people. In 2015, the EFTA bloc’s collective GDP amounted to £710 billion, which compares with the UK’s £1.9 trillion. So 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 with those countries.
Anna Soubry
I was making the case for the single market and the EEA, and I am sure the Minister would agree that that is not an extreme position to hold.
Mr Baker
I listened carefully to the words my right hon. Friend used and I am sure the record will show that she referred to EFTA, but I am glad she has clarified that, in saying she supports EFTA, she means EFTA as an EEA member. But I stand by the remarks I just made. I hope she will not mind my saying to her gently that from the perspective of many who want to leave the EU, saying that we want to solve the problems of leaving the EU by staying in the EU’s internal market, with all that that entails for non-member states, and staying within the EU’s customs union, so that we have to accept the EU’s common commercial policy, appears to suggest that we must solve the problems of the EU by, de facto, staying within it. That is how it comes across to many people who wish sincerely to leave the EU. I did listen carefully to her—[Interruption.] The hon. Member for Nottingham East (Mr Leslie) mentions transition, and of course we have set out the case for the implementation period.
I must press on, because I want particularly to pick up a point relating to borders and migration.
Mr Baker
I want to make this point, but if I have time, I will give way to the hon. Lady. Remaining in the EEA agreement would mean having to continue to accept all four freedoms of the single market, including freedom of movement. Although it is true that Liechtenstein has unique arrangements on the movement of people, the UK is in many respects different from Liechtenstein, a country whose population is less than almost every UK constituency. We can safely anticipate that this exemption afforded to a micro-state would not be afforded to the UK.
I very much regret that, with only two minutes to go, I will have dramatically to shorten my speech. On the customs union, Turkey’s customs union with the UK does not cover certain sectors that would be vital to the UK economy and it does not guarantee frictionless trade across the whole economy, because of course a customs union alone does not solve some of the—[Interruption.] Opposition Front Benchers are saying that this is not what they are looking for. They are looking to be in the customs union and remain harmonised with the regulations of the EU—that is the implication of their position. The implication of their position is that they do not wish to leave the EU. They want the EU to control our tariffs. They would be happy for it to control our laws. They would be happy to accept free movement. This is not what people voted for.
We must not lose sight of our ultimate aim to build a new comprehensive partnership that sees us stay the closest of friends and allies. As the Prime Minister has set out, our vision is of a UK that is a champion of free trade, based on a high standard, thriving as a global Britain which forges a bold and ambitious comprehensive economic partnership with our neighbours in the EU and reaches out beyond to foster trade agreements with nations across the globe. As we approach this March Economic Council, both sides in these negotiations have agreed that we want a common fight against terrorism and crime; we want participation and co-operation on research, innovation, culture and education; we want to avoid the absurdities of the interruption of flights; and we want a trade agreement covering all sectors, with zero tariffs on goods and addressing services. We shall succeed.
Question put and agreed to.
Resolved,
That this House has considered European Affairs.