Beyond Brexit: Institutional Framework (EUC Report)

(Limited Text - Ministerial Extracts only)

Monday 6th December 2021 Grand Committee

[The Minister of State, Cabinet Office (Lord True) (Con)]

My Lords, perhaps I may say in preamble that it is never, and certainly is not, the intention of this Government to be triumphalist, aggressive or divisive on these questions. That has always been the position of Her Majesty’s Government. We see the European Union as a close friend and partner, as the Prime Minister repeatedly states, and we wish for nothing other than good relations with our partners. I hope that I can disabuse the noble Lord, Lord Desai, of his fears on that count.

I thank all noble Lords who have spoken for the contributions made today. As noble Lords will know, parliamentary scrutiny is invaluable and essential in my judgment. The Government remain fully committed to ensuring that this House can play a full role in making this new relationship with our European partners a success.

These reports were published in March and have all been responded to in writing by the Government, but it is welcome that the Committee has had this opportunity to debate them. I have found it a fascinating debate. Progress has been made since the reports were published, even in the face of a global pandemic and the resulting international economic downturn that has affected our partners and ourselves in different ways.

First and foremost, the trade and co-operation agreement has been fully ratified, both in the EU institutions and in the UK by this House and the other place. This landmark moment fulfilled our promise to take back control of our laws, borders, money, trade and fisheries. The importance of this crucial first step was rightly highlighted in the reports debated today. I therefore thank noble Lords on all sides of the argument for their efforts, which ensured that ratification occurred as swiftly as possible in what were challenging and unprecedented conditions.

I also place on record my thanks to the then European Union Committee of this House, along with its sub-committees, which duly scrutinised the trade and co-operation agreement in its series of Beyond Brexit reports. I am grateful to the committee for its valuable work on each of these. Equally, I thank the successor committees—the European Affairs Committee and the Sub-Committee on the Protocol on Ireland/Northern Ireland—for continuing the work of scrutinising our new relationship with the European Union. I hope that it will not be invidious or embarrassing if I express what I think is the sense of all noble Lords who have spoken: that is, the affection, respect and gratitude that we all feel for the noble Earl who initiated this debate for his leading role in all these fora.

On trade in goods, the trade and co-operation agreement was the first free trade agreement that the EU has ever reached based on zero tariffs and zero quotas. This is in line with our aim to provide liberalised market access for goods. I remind noble Lords that the intention on our side was not to seek fully frictionless trade, as the EU was clear that this would require regulatory alignment with its rules. Instead, a balance was struck that safeguarded the UK’s regulatory autonomy and sovereignty as an independent trading nation.

The report notes the importance of establishing the governance—I will return to this—that underpins the TCA as a route to improving UK-EU trade. I am therefore pleased to confirm that, immediately following ratification of the TCA, the Government have established the committees that support the agreement. With one exception, all those committees have already met, including the Partnership Council chaired by my noble friend Lord Frost. As I say, I will return to this point, but the UK and EU have already begun to discuss shared objectives and address the agreed commitments made in the TCA that will help to promote trade in goods between us.

The report also reflects on how important support and good communication between government and industry is; I agree with what many noble Lords said on that. The Government have committed significant funds and resources to supporting and listening to industry and others, and will continue to do so. We are also ensuring that they have a formal voice in the implementation of the TCA, through the civil society forum and the domestic advisory group. The noble Lord, Lord Kerr, asked about them; I will return to them later.

On trade in services, the Government welcome the report’s recognition of the unprecedented and highly liberalised provisions in the TCA for digital services and professional and business services, which will help to ensure that these important UK sectors continue to thrive. The Government also agree that UK businesses need our support to maximise the opportunities of our new relationship with the EU as they recover from the impacts of this pandemic. That is why we have provided extensive guidance for those exporting services to the EU and introduced the new Professional Qualifications Bill, which will provide certainty to business and help to maintain the incoming flow of professionals by giving more autonomy to UK regulators to tailor recognition according to the needs of their profession.

The noble and learned Lord, Lord Thomas of Cwmgiedd, made important points about the law. The Government recognise the importance of the legal services industry in the UK and the role that it plays in facilitating professional services generally. That is why we fought hard for this sector in last year’s negotiations to secure unprecedented provisions regarding the right of UK solicitors, barristers and advocates to practise in the EU using their UK title in both UK and international law. This will be key in ensuring that the UK remains an attractive and competitive trading partner in professional services with the EU, and that, as the noble and learned Lord hopes, UK law remains popular as the governing law of choice for commercial contracts worldwide.

The Government recognise the major contribution that the financial services sector makes to the UK economy. We took swift action to ensure a smooth end to the transition period and have since set out the forward path for the UK’s regulatory landscape in financial services. The UK remains committed to world-leading regulatory standards and has been clear that it stands ready to work with the EU to promote important emerging sectors such as green finance and fintech.

I turn to the report on institutional frameworks. As it helpfully sets out, there is a wide range of supporting governance that underpins the agreement. The breadth of this institutional structure and the mechanisms that it contains are designed to reflect the significant breadth of the agreement, the wide range of areas of co-operation that it covers and the unique nature of the agreement itself. This is only right. As I set out a few moments ago, the UK and the EU are now using these channels to implement the agreement and improve the trade between us. I assure noble Lords that the reports being debated today have contributed significantly to the helpful discussions being had in these fora.

The noble Baroness, Lady Armstrong of Hill Top, made an interesting and penetrating speech about UK-EU trade in goods. She referred to a number of factors, most notably Covid lockdowns across Europe and businesses adjusting to our new trading relationship, which made it inevitable that exports to the EU would be lower at the start of this year than they were at the start of last year. Indeed, the Office for National Statistics cautions that it is difficult to disaggregate the various factors and identify the underlying causes at this point, so we cannot yet draw any clear conclusions. Despite this, overall freight volumes between the UK and the EU were back to their normal levels by February 2021, and we are seeing food and drink exports grow. Exports increased in seven out of 10 of the UK’s leading export markets during the first half of 2021.

As I said, the deal maintains zero tariffs and zero quotas on trade in goods between the UK and the EU. This is the first time that the EU has ever agreed to complete tariff-free, quota-free access in an FTA. It provides for streamlined customs arrangements, including recognising our respective trusted trader schemes, to support the smooth flow of goods at the border and reduce administrative costs for traders. I agree with the noble Baroness on the need to improve, for example, conditions for road hauliers.

The noble Lord, Lord Hannay, and others said that sanitary and phytosanitary checks were creating difficulties for some sectors exporting to the EU. We proposed equivalence commitments in line with the WTO SPS agreement and the EU’s past FTA practice during the TCA negotiations. Given this, the EU’s refusal to include equivalence mechanisms was, to us, surprising. Nevertheless, the TCA contains provisions to co-operate with each other to review our respective SPS measures to avoid unnecessary barriers to trade.

The EU is applying a number of trade restrictions on UK exports. Some of these are due to blanket bans in EU legislation, such as the prohibition on the import of live bivalve molluscs from class B waters from third countries. Others are due to the EU not granting the UK full listed status, such as the ban on the import of seed potatoes and the granting of Part 2 rather than Part 1 listing for the movement of pets. I put in a plea for Dilyn the dog.

We remain unconvinced of the risk basis for these restrictions given our high biosecurity standards, and have consistently raised these trade barriers with the European Commission, including through the specialised committees. Any solution will need to safeguard UK sovereignty and autonomy and cannot involve aligning with EU law. However, I assure noble Lords that we stand ready to discuss such an equivalence-based agreement with the EU, and have raised it through the partnership council and the specialised committees that noble Lords referred to. In general terms, EU member states can, and do, attend specialised committees.

The noble Baroness, Lady Donaghy, the noble Earl and others raised financial services. In his Mansion House speech in July, the Chancellor set out the Government’s vision for an open, green and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens across the United Kingdom.

The UK and the EU’s financial markets are closely linked, and the EU remains a key international partner for us. We hope that the EU will continue to be a champion for international trade and openness. I disagree with the noble Baroness, Lady Bennett of Manor Castle: international free trade has been one of the greatest boons to poor people and raising people out of poverty across the world in the history of mankind. We look forward to collaborating with the EU on a range of issues, such as green finance, in the next year.

The Chancellor was clear in his Mansion House speech that the EU will never have cause to deny the UK access because of poor regulatory standards. We welcome the European Commission’s recent announcement regarding the extension of an equivalence decision for the UK’s central counterparty clearing houses. The Government have made sure that the EU has all the information it requires to make a positive decision for the UK for all equivalence regimes, and we remain open to answering any further questions that the Commission may have. On the MoU, raised by the noble Earl in his opening speech, technical discussions have been concluded; the MoU can be signed once the EU has completed its formal processes that are required under its rules.

Many noble Lords referred to the UK’s participation in Union programmes. The Government are committed to the UK being a science and research superpower, and we value the strong collaborative partnerships that we have globally in the areas of science, research and innovation. Through the TCA, the EU and the UK agreed terms for participation in Horizon Europe, Copernicus and Euratom research and training. As the underpinning EU regulations were in draft at the time, a joint declaration was agreed, setting out the parties’ intentions to formalise the UK’s participation at the earliest opportunity and with the view that the UK would participate from the beginning of the programmes.

Although the UK stands ready to uphold the agreement reached last year, we continue to see delays from the EU in formalising UK participation. That is disappointing. The EU is obligated to finalise our participation under the TCA; it would in fact be a breach of the treaty if this were not delivered in a timely manner. Our priority is supporting the UK’s scientists and researchers. That is why the Government announced on 29 November a financial safety net, in the form of guaranteed funding for the first wave of eligible and successful applicants to Horizon Europe who have been unable to sign grant agreements with the EU as a result of these delays. We will support our science and research community, no matter the scenario. We had a set of alternative plans developed in 2020 and are revisiting these. We will certainly keep the House informed.

As to Erasmus, I know that is a matter of regret to some noble Lords. We considered carefully which programmes were in our interests to join. The UK would have made a large net contribution to the Erasmus+ programme. We have chosen instead to pursue a global exchange programme under the new Turing Scheme, providing opportunities in Europe as well as around the world for young people to experience international education.

The noble Baroness, Lady Donaghy, raised the important question of touring musicians. She was echoed by a number of noble Lords in their rightful concern about creative industries. The UK has a creative heritage of which we are rightly proud. It was perhaps inevitable that, following the UK’s departure from the EU, there would be changes in how creative professionals toured. I know that this, exacerbated by the pandemic, has led to uncertainty in the sector, since working and touring in Europe is such an important part of their professional lives. In the negotiations for the TCA, we sought to ensure that touring artists and their support staff would not need work permits to perform in the EU. Our proposals were rejected by the EU, although we have been able to agree similar measures with other like-minded partners, for example Norway and Iceland.

I am aware that there have been calls for the Government to negotiate a visa waiver. It is not government policy to seek such agreements and neither did the EU propose a visa waiver for paid activities during the TCA negotiations. What was proposed by the EU was a reciprocal visa waiver for short stays, for example as a tourist. However, nothing in this proposal would have compelled member states to change their visa regimes for paid engagements such as performing at a concert.

Our focus now is on working directly with member states, which are principally responsible for deciding the rules governing what work UK visitors can undertake. Having engaged with EU member states, we have established that UK musicians and performers do not need visas or work permits for some short-term tours in at least 21 EU countries. This includes Spain, a key touring market for the UK, which changed its rules on visas last month. This change is testament to the efforts of the sector as well as the Government.

I was asked about the governance framework. The first partnership council meeting took place on 9 June 2021. The meeting marked an important milestone in the relationship between the UK and the EU as friendly trading partners and sovereign equals.

[Lord Hannay of Chiswick (CB)]

The Minister unfortunately did exactly as I predicted, which is to describe in great detail why nothing was done for the performing artists in the negotiations pre Brexit. He explained carefully why our proposal was rejected by the EU and its was rejected by us, but he has not said anything about what we propose to do to remedy the damage being done, other than to refer to the bilateral contacts that we have had with member states. I am sure that the Minister knows perfectly well that many aspects in that sector cannot be dealt with successfully bilaterally. There is a need for both bilateral and collective discussion as things such as cabotage, carnets and so on cannot be dealt with bilaterally. Can the Minister not simply say that the Government will pursue, bilaterally and through the TCA, all avenues possible to get a better deal than we have at the moment, and not go back to Tweedledee and Tweedledum saying, “They said this and you said that in the negotiations”, but to see whether we cannot move forward on this bilaterally and collectively?

[Lord True (Con)]

My Lords, the noble Lord repeats the points that he made earlier. I have repeated and set on record the efforts made by the United Kingdom Government on behalf of these important industries and drawn your Lordships’ attention to progress that has been made. Without going over this ground again, I reassert the Government’s concern for the well-being of these industries. It is time to move on. I have already pursued, without an intervention, a good deal of time.

I was asked about the number of meetings of the specialised committees that have taken place. I say to the noble Baroness, Lady Chapman, that the Government take these seriously. As of Monday 6 December, almost all the TCA specialised committees have met. Nine of the 10 trade specialised committees have met. The SC on VAT is due to meet on 15 December. The delay is due to internal EU processes to prepare for decisions to be taken jointly by the UK and EU at the initial meeting. The Specialised Committee on Participation in Union Programmes is the only outstanding SC yet to convene. I understand that it will convene later this month. If I am incorrect, I will come back to noble Lords.

On the civil society forum, about which the noble Lord, Lord Kerr of Kinlochard, asked, the Government sought public views on how to engage with business and civil society groups on TCA implementation. We published the official response on 19 October. An expression of interest campaign was launched to determine membership. We received 83 expressions of interest. Individual businesses are not included in the scope of the domestic advisory group and the civil society forum, but they can engage departments through existing channels outside these fora. After careful consideration of possible dates, the first meeting of the domestic advisory group is planned for early 2022. The Government are in discussions with the European Commission to finalise the exact date for the first civil society forum, which is also planned for early 2022.

As for the parliamentary partnership assembly, noble Lords will be aware—I know I invite another intervention, but it is the reality—that this is a matter for Parliament rather than the Government. I pay tribute to the noble Earl, Lord Kinnoull, and to the Member of Parliament for North East Hertfordshire in the other place for their continued work on this important matter. The noble Lord, Lord Kerr, asked whether my noble friend Lord Frost was responsible for relations with individual member states. That is true, but he works hand in glove with the Foreign Office, with the active involvement of the Foreign Secretary and the Prime Minister.

I was asked about parliamentary scrutiny of the TCA. My noble friend Lord Frost of Allenton has been discussing these matters with the chairs of committees tasked with scrutinising the Government. These discussions are approaching their final phase and will, I trust, be agreed shortly. While I listened carefully to the noble Earl’s requests and will pass them on, I do not wish to cut across these discussions. The scrutiny of individual departments on matters relating to their individual policy remits, through EU committees and the normal committee processes, is included. In the interim, the Government are working diligently to ensure that committees can properly scrutinise government policy.

In answer to the point made by the noble Lord, Lord Jay of Ewelme, my noble friend Lord Frost has reminded colleagues of the importance of scrutiny and of Explanatory Memoranda being timely and of the highest quality. It is an important point, and I assure him that it has been taken on board.

The noble Lord also asked about the Northern Ireland protocol. In referring to this, I apologise—I know that he would wish me to do so—that my noble friend Lord Frost is unable to be here. Noble Lords will understand the current activity on this front. The Government are in intensive discussions with the EU with the aim of delivering significant changes to the Northern Ireland protocol. Most recently, my noble friend Lord Frost spoke with the European Commission vice-president, Maroš Šefčovič, last Friday via a videoconference. They covered the full range of outstanding issues; my noble friend welcomed the Commission’s professed readiness to make progress on them. The UK Government still want to find a negotiated solution if possible; we are ready to keep working constructively and intensively to that end. I must tell noble Lords that the gap between our positions is still significant, and progress on many issues has been limited. The UK Government’s position remains as before: the threshold has been met to use the Article 16 safeguards to protect the Belfast/Good Friday agreement if solutions cannot be found. However, my noble friend Lord Frost will speak to Vice-President Šefčovič again this week, and the UK and EU teams will have intensified talks in the coming days.

There has been some potential convergence on the medicines issue, which the noble Lord, Lord Jay, asked me about, but agreement has not yet been reached. So far, we have been unable to consider all the details of the EU’s proposals in the way we need to in this sensitive, critical and highly technical area, where solutions must work in practice and genuinely solve the problems. We continue to believe that more progress is needed on customs and SPS arrangements if we are to deal with the fundamental issue of improving the flow of goods between Great Britain and Northern Ireland. There have been some constructive talks on subsidy control, but the issue remains unresolved, as does the wider issue of governance.

I have a detailed response on Gibraltar that I should give to the noble Baroness, but I am looking at the clock. I can give it to your Lordships now; perhaps I should. In 2020, the EU insisted on a two-phase process for negotiations which required a separate UK-Spain agreement—the framework—prior to formal UK-EU negotiations on a legally binding treaty. On 31 December 2020, the UK Government, the Government of Gibraltar and the Spanish Government reached agreement on a political framework to form the basis of a separate treaty between the UK and the EU regarding Gibraltar. The negotiations between the UK and the EU on that treaty began in October, and three rounds have taken place so far; the FCDO is leading on these negotiations. In the discussions to date, the UK has made clear the need for an agreement that reflects the delicate balance in the political framework and Gibraltar’s unique circumstances and is proportionate to Gibraltar’s size and the small volume of trade at stake. The UK remains steadfast in its support for Gibraltar, its people and its economy in any scenario and will not compromise UK sovereignty.

I have spoken at great length—I apologise to your Lordships for that—but the reports were of fundamental interest and importance. I have sought to answer many of the questions asked in the debate, though perhaps not to everyone’s satisfaction. I conclude by thanking noble Lords not only for their valuable contributions this evening but for their extraordinary hard work, intelligence and thought that have gone into producing these reports. I have no doubt that they will help us going forward as we seek to cement our new relationship with the EU alongside other international partners. That is our wish, and I hope it is a wish that all of us, whatever our past feuds and differences, now share.