Brexit: Economic Impact

Wednesday 20th February 2019 Lords Chamber

Statement

15:43

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, with the leave of the House, I will repeat the Answer to an Urgent Question given by my right honourable friend the Financial Secretary to the Treasury in another place earlier today.

“Mr Speaker, at the end of November, the Government published our analysis assessing the economic impact of leaving the European Union. It not only included an analysis of the Government’s negotiating position as set out in the July 2018 White Paper, but it went further still and considered three other scenarios: a free trade agreement, an EEA-type relationship and a no-deal scenario.

Specifically, the analysis showed that the outcomes for the proposed future UK-EU relationship would deliver significantly higher economic output—about seven percentage points higher—than the no-deal scenario. A no-deal scenario would result in lower economic activity in all sector groups of the economy compared to the White Paper scenario. That is why we should pass this deal: to avoid no deal, and to support jobs and the economy.

In publishing this work, the Government delivered on their commitment to provide an appropriate level of analysis to Parliament. In addition, this House has had plenty of opportunity to debate both the analysis and the deal on the table. As the Prime Minister said, we will bring a revised deal back to the House for a second meaningful vote as soon as we possibly can.

In the meantime, it is right that the Government are afforded the flexibility and space to continue their negotiations. This is because the agreement of the political declaration will be followed by negotiations on the legal text. The UK and the EU recognise that this means that there could be a spectrum of different outcomes. We need to approach these negotiations with as much strength as possible. The focus must now be on the future: planning and prioritising what matters.

Let me remind the House that we will have an implementation period, a new close relationship with the EU and, crucially, the ability to strike trade deals around the world, bringing back control over our money, borders and laws to mould a prosperous and ambitious new path for our country—on our terms. No matter what approach we take, the UK economy will continue to be strong and grow in the future”.

15:45

[Lord Davies of Oldham (Lab)]

My Lords, is it not amazing, with the Government’s industrial strategy on the point of collapse and our car industry showing the enormous stresses and strains of the way the Government run the economy and their attempt to secure Brexit on appropriate terms, that Ministers can trot out these ridiculously optimistic propositions on how the economy will fare? Is it not the case that all the Government’s proposed options would have a serious, negative effect on the British economy? Has the Chancellor not already accepted that they will amount to a loss in GDP of at least 4%? Worse still, the Bank of England said that no deal would have an even more adverse effect than the financial crisis. The Government contemplate a considerable loss. Is it not totally irresponsible to threaten to act in a way that no proper Government would contemplate, in threatening the possibility of no deal?

[Lord Bates]

I do not accept that, as the noble Lord would anticipate. There are reasons to be positive about the UK’s prospects, particularly if we leave with a deal. The analysis showed the severely negative impact that no deal would have on the UK economy, which is why we want to avoid it at all costs and why a responsible approach from the Opposition, if they care about the economy and jobs, would be to support the deal.

[Baroness Kramer (LD)]

My Lords, the November analysis demonstrated that every scenario would be hugely damaging to the UK economy; it said that no deal would be worse but that the other options were significantly awful. That raises the question of why the Labour Party is not openly opposing Brexit at this point. The deal modelled here, which the Minister presents as though it were the Government’s, is in fact the Chequers deal, which had within it “max fac” and therefore assumed absolutely no friction in trade between the UK and the EU. That option is no longer on the table. The backstop was part of the analysis as well. We therefore have never at any point seen numbers that represent the deal currently being negotiated by the Prime Minister. Does the Minister not agree that it is a disgrace that MPs will be asked to vote on that deal without ever having seen the analysis of its impact on our economy in the immediate present, the near future and the long term?

[Lord Bates]

I do not accept that. We produced that analysis, which ran to some 83 pages. The noble Baroness says that we did not produce analysis. It was the proposal for the backstop in the withdrawal agreement that was rejected very clearly in the other place in the first meaningful vote. In all other aspects of what we seek to achieve, we want to see maximum facilitation and trade. That is what the Prime Minister is working tirelessly to secure with our European partners.

[Lord Hannay of Chiswick (CB)]

My Lords, does the Minister not recognise that it was a little odd to produce three rather theoretical options but not to test them against the present situation? Why did the Government not do that? That would be the normal thing to do. Could it have been that they were frightened to show that all these options were a good deal worse, some of them very much worse?

[Lord Bates]

In some sense they did that, because the analysis benchmarked against the status quo—our membership of the European Union. It then went through the options and said that, over a 15-year period, if the White Paper model were accepted there would be a 0.6% impact on GDP, 2.1% modelled on White Paper sensitivity, 4.9% on a free trade agreement and 7.7% on no deal.

[Lord Bridges of Headley (Con)]

My Lords, when the Government publish their tariff schedule for what would apply in the event of a no-deal scenario, will they also publish an impact assessment of those tariffs?

[Lord Bates]

My noble friend puts forward an interesting idea. Of course, the tariff schedule has not been published yet. It will be published shortly, and I am sure the Financial Secretary to the Treasury and others will have heard my noble friend’s suggestion.

[Lord Davies of Stamford (Lab)]

My Lords, if the Government seriously wanted a deal, they would be able to conclude one very easily in a matter of days on several bases—for example, on the basis of remaining in the customs union indefinitely. I am quite certain they could get it through the House of Commons as well. If the Government stopped listening slavishly to and taking orders from the ERG, and instead interrogated the national interest, that problem would have gone away years ago.

[Lord Bates]

The solution the noble Lord proposes would necessitate our signing up to a common external tariff barrier, which would mean we could not negotiate our own trade deals; we would not have control of our borders in terms of free movement; and we would still have our laws dictated by the European Court of Justice. That is what was rejected and what we are trying to negotiate an alternative to.

[Lord Bilimoria (CB)]

My Lords, following the question from the noble Lord, Lord Hannay, the Minister said that under the Prime Minister’s deal the economy would be 7% better off than in a no-deal scenario. Does the Minister accept that the Prime Minister’s deal would be much worse than remaining in the European Union? The economy would be far better off. Does he admit that? A Norway-plus, least-worst option would also be much better for the economy than the Prime Minister’s deal.

[Lord Bates]

I do not accept that, because the point is that we do not know what that final deal is. There are also significant factors that need to be put in here, such as new trade deals that could be secured with trading partners. We already had exports at record levels last year. The UK is still regarded—just last month—as the number one location for foreign investment, according to Forbes. Just in January, Deloitte said London was the world’s best city to invest in. The reality is that this country has a huge amount to offer. Once that energy is released and we get beyond Brexit, I believe we will make those figures look pretty sad and depressed.

[Baroness Ludford (LD)]

My Lords, I follow up the points made by my noble friend Lady Kramer. A statistic in the White Paper on the long-term economic analysis, which assumed much more serious non-tariff barriers than the Chequers White Paper, showed that the hit to GDP would, instead of 0.6%, be over 2%—between three and four times worse. That was reckoned to be the nearest to the actual withdrawal deal—not frictionless trade or all these fabulous unicorn trade deals we were supposed to get, but closer to the reality. I press the Minister again on the need for a real economic analysis of what the Prime Minister is actually negotiating, not a fairy tale.

[Lord Bates]

I agree with that analysis. That is why I said 0.6% was modelled on the White Paper, but then we introduced a sensitivity analysis which showed that the hit might be 2.1%. That information—which we were told was deficient and incomplete in order to make decisions—is there.

[Lord Hamilton of Epsom (Con)]

My Lords, as there are two parties to this deal—the EU and the United Kingdom—would it not be valuable to carry out an impact assessment of what will happen to the EU under no deal, particularly as it sells one and a half times more to us than we do to it and, in the event of no deal, it would not get £39 billion?

[Lord Bates]

I was with my noble friend right up until the last element of what he said. He and I have gone over that territory before but, on the first part, no deal is not only not in the UK’s interests, it is not in Europe’s interests. We want to see Europe prosper because it is a major market for us. The best thing to do is to resolve this difference over the backstop, which is unacceptable in the other place, get behind a deal, and get on with Brexit.

[Lord Reid of Cardowan (Lab)]

My Lords, may I return to the question asked by the noble Lord, Lord Bilimoria, a few minutes ago? The Minister said in a previous reply that the benchmark for measuring the impact assessments was the status quo: our present position as a member of the European Union. He also said that every other option tested was worse than the status quo. Will he therefore admit the logic of his response to the noble Lord, Lord Bilimoria—that remaining in the European Union is better than any other available option, including the Prime Minister’s deal?

[Lord Bates]

I will give broadly the same answer, if the noble Lord will bear with me. What was not given was any potential up side to leaving the European Union, and the ability to have our own trade deals and set our own economic and trade policy. That needs to be factored in, and we remain confident that we have a bright future outside the European Union, as was shown by the record levels of employment we are seeing in this country, and the falls in unemployment announced earlier this week. These are all reasons to be hopeful and optimistic about the future.