Finance Bill
Baroness Falkner of Margravine ExcerptsFriday 17th July 2020
(4 years, 5 months ago)
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Baroness Falkner of Margravine (Non-Afl) [V]
My Lords, I broadly welcome most of the measures the Government have taken since the onset of this fiscal emergency. I think Her Majesty’s Treasury needs to be congratulated on the dexterity and speed with which it has risen to these unprecedented challenges. In a sense, our heroes are the operators of Whitehall: the Civil Service has stepped up to the mark and done an extraordinary job in the last several months.
I want to start with the reference that has been made to the health emergency being equivalent to fighting a war. If that analogy holds, surely a solidarity tax, already mentioned by the noble Lord, Lord Macpherson, would be the appropriate response, because that is what is normally used in a war. I accept that one of the unique features of this fiscal emergency is that there is both a demand and supply-side shock, and that the measures taken need to be very carefully calibrated, but I wonder whether the Minister is completely au fait with the German example after reunification in 1991, when a solidarity tax surcharge was introduced across the board: on individuals, SMEs and larger corporations. It was set at a flat rate of 7.5% for one year—it was reintroduced several years later, for a different reason—but it gave an injection to the East German economy for the vast amounts of money that had to be spent in bringing that up to the level of the West German economy.
Given where we find ourselves on the need to ultimately deal with the debt burden, will the Government consider a progressive version of that kind of programme, perhaps to last for two years at 1% for basic rate taxpayers, 2% for higher rate taxpayers and 3% for additional rate taxpayers? It would not breach the Government’s manifesto commitment not to bring in higher taxes in the sense that the public now want—I think 66% is the figure in recent polls—to pay higher taxes to support vital public services such as the NHS and social care.
My second point, very briefly, is about the stamp duty land tax. I wish it had been longer-term relief for first-time buyers and not a rather blunt tax which will benefit second homeowners, buy-to-let landlords and all those who are the last people to need assistance at this point.
Fixed-term Parliaments Act 2011
Baroness Falkner of Margravine Excerpts(4 years, 6 months ago)
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Lord True [V]
My Lords, my noble friend is an outstanding authority on these matters, and I am sure that all contributions from him will be heard on all sides of the House. He is quite right to say that the Government made a commitment in their manifesto to repeal the Act. However, I can only repeat that detailed announcements about how we will proceed will come in due course.
Baroness Falkner of Margravine (Non-Afl) [V]
My Lords, I served on the Constitution Committee during the passage of the then Bill. We heard extensively about the many concerns regarding it, which eventually came to pass during 2017-19. If ever a demonstration was needed that the Act is unsuited to our constitution, the last few years provided it. Can the Minister therefore please press for the review to be announced as soon as possible so that we have the legislative time to pass the necessary legislation to do away with it?
Lord True [V]
My Lords, the Government remain absolutely committed to replacing the Act, and I totally agree with the noble Baroness about its impact. We all lived those days, months and years, and we do not wish to see a recurrence.
Beyond Brexit (European Union Committee Report)
Baroness Falkner of Margravine Excerpts(4 years, 7 months ago)
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Baroness Falkner of Margravine (Non-Afl)
My Lords, I too was a member of the committee under the chairmanship of the noble Lord, Lord Boswell. It is no understatement to say that his outstanding tenure was undoubtedly during the most eventful period in the committee’s history, and he led us through it most ably.
Given that this report has been overtaken by events, I want to concentrate on the Government’s negotiations and aims, as set out in their February 2020 Command Paper. It sets out five areas where the Joint Committee and dispute resolution systems will not apply. These are mainly areas where the EU is, as we know, particularly concerned about a “level playing field”. I can see the need for the United Kingdom to have regulatory autonomy, particularly as the Covid-related economic shock will lead to EU states adapting differentially to technological change and automation, which will impact directly on some of those areas where the EU wants a level playing field. The Government is therefore right in principle, but I urge them to retain a form of joint dialogue in a structured format, as we will need to have some common approaches to these problems, particularly our competition policy and our policy on those countries that have been blatantly shown to play by a different rule book.
Finally, I turn to financial services, where, the report tells us, the equivalence assessments are separate from the FTA and expected to be completed in June 2020. Will the Minister confirm that that timetable still holds, and, if not, when they are likely to be concluded? As he will appreciate, they are terribly important for our financial services sector as we approach the end of transition.
House of Lords: Membership
Baroness Falkner of Margravine Excerpts(4 years, 7 months ago)
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Lord True
My Lords, I think this is going wide of the Question, though the noble Lord might wish to reflect on the large number of Peers on his own Benches who were brought in under the previous two Administrations. I shall not enter into conspiracy theories; the House should concentrate on fact and work. I have stated on the record that this is not, and has not been, government policy.
Baroness Falkner of Margravine (Non-Afl)
My Lords, while I completely support reform of the House of Lords—indeed, I was enthusiastic about the last reform—I hope that when Ministers get round to considering this matter they will look at the need for a more balanced Chamber representing not only the protected characteristics but expertise beyond the current framework. The House does need refreshing from time to time; I support the Minister in that view.
Budget: Economic and Fiscal Outlook
Baroness Falkner of Margravine Excerpts(4 years, 7 months ago)
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Baroness Falkner of Margravine (Non-Afl)
My Lords, I agree with other speakers that it is, indeed, a surreal experience to be speaking on government compliance with the SGP on a convergence programme, given that we are diverging from the EU, notwithstanding our obligations under the transition period. I also note that within the EU the SGP escape clause has been triggered, but that the EU insists that this should not suspend programme reporting. That seems slightly odd, given that no member state will be able to say with any certainty where it might be even by year end, never mind in the next three-year period. However, since the UK is complying, I shall make two general points.
The obvious point is that although we have left, the economic strength of our largest trading partner—its growth and prosperity—continues to be of huge significance to the UK economy and business. The EU, just like all economies, is throwing everything at dealing with Covid-19, but we simply do not know how that will play out in the peripheral economies of the eurozone. All we can do is hope that this emergency continues to be a health and economic emergency and does not turn into a financial crash as well; 2008 still hangs over us. Looking at the stock of non-performing loans on banks’ books, a Financial Times report yesterday shows that four of the top five banks making provisions for bad loans are UK institutions, so we need to be vigilant as the situation unfolds.
My second point has to do with the UK record in terms of deficit and debt criteria. When I took over as the chair of the EU Financial Affairs Sub-Committee, the UK was in excessive deficit procedure, for the perfectly understandable reason that our deficit and debt had rocketed during the financial crash of 2008. Although we were not subject to sanctions, due to Protocol 15, we were nevertheless subject to surveillance and had to demonstrate an endeavour to avoid an excessive government deficit. This was achieved and the UK returned to the preventive arm of the SGP, but the discipline of a deficit and debt target or range is an important one, as long as it is flexible and can adjust to emergencies to take account of automatic stabilisers.
My question to the Minister, in finishing, touches on the Government’s fiscal rules. While these are desirable in normal times, I have always disagreed with the straitjacket of PSNI not exceeding 3% of GDP, so will the Government rethink these rules in light of the current situation?
Tax Avoidance
Baroness Falkner of Margravine Excerpts(4 years, 7 months ago)
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Lord Agnew of Oulton
I assure the noble Lord that all these things are continuously under review. As I mentioned briefly in the previous Question, we have introduced in days things that could often take years, so by definition we are keeping a very careful eye on them. To give the noble Lord some reassurance, with most of these loan schemes, businesses have to show that they are viable, and if they are going to continue to pay dividends the banks will take a view on that and decide whether it is appropriate. These are not automatic entitlements; they have to be justified.
Baroness Falkner of Margravine (Non-Afl)
My Lords, I declare my interest related to the Bank of England, as set out in the register. The Minister referred to the plethora of regulation and law that came in in the period after 2008-09, but he will recall that the bankers who were bailed out paid themselves excessive bonuses and therefore suffered in the court of public opinion. Will the Government go a little further and at least publish the list of companies that are benefiting from all kinds of taxpayer support on offer this time, so that we can see who is benefiting from it in a transparent manner? Where the Government give support to those companies, will they at least require an equity holding as collateral and preferably give only loans, not grants?
Lord Agnew of Oulton
The noble Baroness makes very good points, and I will certainly take her ideas back to the Treasury. We also ought to acknowledge that a number of senior managers have announced pay cuts during this difficult time. Our overall macro concern at the moment is to protect businesses and employment and to make sure that we can bounce back as quickly as possible from this crisis, but I take on board her helpful comments.
Economy: Update
Baroness Falkner of Margravine Excerpts(4 years, 7 months ago)
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Lord Agnew of Oulton
The noble Lord is a little harsh on the banks. I accept that there was some bad practice in the lead-up to the crash 12 years ago, but there have been dramatic changes in governance and lending practices since then. There is also a levy on banking profits, which goes some way to deal with the issue that he just raised. I genuinely believe that any slowness in getting these loans processed at the moment is not through any intent on their part but that they have had to completely overhaul their lending systems to react at the speed at which we expect them to. However, I am always open to hear any examples of bad practice, and if my noble friend would like to write to me, I give my assurance that I will follow it up.
Baroness Falkner of Margravine (Non-Afl)
My question concerns universities and support for the higher education sector, and I refer to my interests as set out in the register. I accept that, as the noble Lord has said, not every business can be saved, but universities are not traditional businesses. However, they are absolutely fundamental to our long-term recovery as we try to climb out of this deep recession. Universities are going through a short-term demand-side shock due to the collapse in international student numbers. We have been hearing in the media that the Treasury is unconvinced about providing support for them, but I would say to the Minister that it needs to hold urgent talks because they are also fundamental to their location—to their places and to their areas. The impact of universities going bankrupt will be profound across the community. Will he undertake to ensure that the Treasury takes a look at the proposal put forward by Universities UK, that conditional though it might be, that support is essential?
Lord Agnew of Oulton
The noble Baroness is right to say that universities play an extremely important part both in our society and in our economy, but it is worth reassuring her that they are eligible in aggregate, as business in their own right, for some £700 million-worth of coronavirus support. That support is available to them now. Very active discussions are going on, particularly about the loss of foreign students, because of course they pay a higher tariff and thus have in the past provided good cash flow for universities. It is worth making the point that universities have always been jealous of their independence, and if they need government support now, I hope that there will be a bit of humility on the part of those vice-chancellors who take very large salaries from their organisations. I would expect there to be some conversation about that if there is to be any support.
Budget Statement
Baroness Falkner of Margravine Excerpts(4 years, 9 months ago)
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Baroness Falkner of Margravine (Non-Afl)
My Lords, it is a real pleasure to follow the noble Lord, Lord Hunt of Wirral, whose long experience and pragmatism is something that we in this House should all take account of.
Like other noble Lords, I want to concentrate on the broad economic outlook in these extraordinary times. It is said that in 1942, in the middle of the Second World War, William Beveridge said on publishing his report on the welfare state:
“A revolutionary moment in the world’s history is a time for revolutions, not for patching.”
I think we are all coming to the realisation that this extraordinary period may end up being revolutionary, not least in its impact on globalisation—or deglobalisation —and on our faith in the capitalist model underpinning these free societies.
Several analogies have been drawn between the financial crash and this coronavirus pandemic, but the profound difference is of time, scale and scope. With the financial crash, it took five months between the run on Northern Rock and its eventual nationalisation. In the case of Covid-19, it has taken 13 days from the first death on 5 March to around 71 now. While the crash was a relatively slow burn with a very long tail, as we know from austerity policies, it is expected that the UK will see 95% of cases over a nine to 10-week period only.
Another difference is scale. Banks and large businesses going under undoubtedly impacted on a significant number of people very directly, but the indirect effect of lower public spending was a slow, long burn over many years, as other noble Lords pointed out. For me, the underlying risks to the economy are more grave this time and the level of uncertainty, as opposed to risk, is rising; hence the slump in global markets. We do not know whether a global recession, or indeed even a depression, caused by the pandemic will go beyond the current stock market slump to a full-blown financial meltdown, which will be of a different order of magnitude from that which we are planning for in loosening the purse strings.
We know that global regulation and financial buffers have made banks much more resilient and that the stress tests to evaluate bank safety have been made much tougher, taking into account multiple scenarios for shocks to the economy. However, the modelling has not anticipated the speed and depth of this pandemic, and its impact on regional and national lockdowns on supply and demand constraints. The equity market falls contemplated in worst-case scenarios of around 25% have already been exceeded, since some markets have fallen south of 30% in the last couple weeks. While central banks have countercyclical capital buffers, the question is whether they are deep enough to increase the capacity to lend to avert a credit crisis.
In this context, I note that calls for helicopter money, which has been mentioned by the noble Lord, Lord Lamont, are being considered in the US, where Steven Mnuchin, the Treasury Secretary, is contemplating a cheque of $1,000 for every American citizen. Here in the UK too, there are increasing calls for universal basic income. I note that the Prime Minister did not rule it out in Prime Minister’s Questions this morning. It is not surprising, since conventional economics holds that when interest rates are low—ultra low—debt can grow exponentially. I think that was the basis of the Labour Party’s spending splurge promised in its manifesto.
The current Government’s borrowing assumptions in the Budget were also predicated on that view, hence the £30 billion stimulus, which would have looked like good economics had normality continued in the market and the wider economy. While some speakers on the Labour Benches have used this crisis to suggest that there should have been no attempt from 2010 onwards to bring down the public debt, I am curious whether they think that the economy would have been able to withstand this particular crisis, or that this level of spending would have been possible, if we were still carrying a level of government debt of around 57% of GDP, as was the case in 2009. Of course, that excessive and extremely high public debt is a burden carried by future generations.
However, it has all changed now, and hard times call for new thinking. As far as helicopter money or universal basic income are concerned, if used to alleviate shocks to earnings and employment they must be for a very time-limited crisis response, since its overall effect on incentives and issues of equity will create free-riding. I think the noble Lord, Lord Skidelsky, said that we will all have to start paying for what we are giving. Some will pay more than others.
The Government should use every lever that they can at the moment, but in doing so they must surely be mindful that things can get worse, even from where we are today. At unpredictable times, we might be mistaken in thinking that we have hit the bottom, only to discover that our sight was blurred and that the bottom is still some way down. Foresight, not panic, should be the order of the day for both the Government and the public. Good judgment should drive the response, not the need to do something, even at this time of national crisis.
European Union: Negotiations (European Union Committee Report)
Baroness Falkner of Margravine Excerpts(4 years, 9 months ago)
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Baroness Falkner of Margravine (Non-Afl)
My Lords, I agree with the EU Select Committee’s report and support the Motion in the name of the noble Earl, Lord Kinnoull. I was a member of that Committee until last summer and I know how carefully it strives to be as objective as possible. This report upholds that tradition of neutrality. However, I do not support the amendment to the Motion in the name of the noble Baroness, Lady Hayter, for reasons that I will set out.
The EU Committee’s report notes the change in the Government’s Command Paper of February to the political declaration of October 2019. Again, I agree that there is a change, but I point to the significant fact that explains that change: the event of a general election on 12 December 2019. This was contested on the basis that, if the Conservatives won the election, they would seek a very different settlement from Prime Minister May’s withdrawal agreement in terms of the sovereign autonomy of the United Kingdom. They won that election resoundingly, hence the hardening of the autonomy provisions in the UK’s negotiating position.
The Committee also notes the EU’s new hardening of its own position on provisions to implement a level playing field, almost predicating the deal on this proviso. This change of position has some history. During my time on the committee, we had several meetings with Mr Barnier through the course of the negotiations. The quest for a level playing field was there, but mainly in regard to market access for, for example, financial services. I recall one meeting in, I think, November 2018 when there was a robust exchange between us when I asked him why he thought the UK would wish to leave the EU if it would end up as a rule-taker with no rights but having to abide by EU rules. I remember his answer in the margins of the meeting, which was simply, “Well, it is your choice.”
Regulatory autonomy is particularly relevant at a time of rapid technological and economic change, which will undoubtedly impact the prospects for all advanced economies in the relatively near future, so dynamic alignment with EU rules in areas such as environmental protection and workers’ rights come at a time when most independent states will seek as many levers at their disposal as possible to mitigate the effect of job-displacing technology. In plain English, every country wants to do what it needs to do to protect the jobs and prosperity of its citizens. That is why carve-outs and exemptions exist in all trade agreements.
Regarding state aid, Mr Johnson, in his speech of 3 February 2020, detailed the enforcement taken by the EU against EU member states. He did so to prove that the UK is not front of the pack in diverging from EU rules. The UK, he said, was subject to four actions in 21 years, compared with 29 against France, 45 against Italy and 67 against Germany. The record speaks for itself.
A further change to the EU position not mentioned in the report is the reluctance of the EU to envisage a Canada-style CETA. Again, Mr Barnier’s sideshow, wheeled out frequently during the negotiations, had several levels of relationship on offer, depending on what the UK sought to do in its withdrawal agreement and future relationship. If we wanted untrammelled market access, we had to be in the single market and the customs union. At the other end of the scale was the Canada CETA as an ordinary third country. So it is surprising to see that once the UK has resolved to be a third country, the EU now discovers, three and a half years later, that we have a close geographical proximity and are a large economic power—which are the reasons it gives for why a Canadian-style CETA is inappropriate for us.
The UK position, reflecting the Government’s majority, can be summed up by the observation made by John Maynard Keynes: “When the facts change, I change my mind.” However, instead of a similar realisation that the facts on the ground have changed, the EU seems to move away from the political facts in the UK, its negotiating partner. However, I hope that these are just negotiating positions through which a consensus will emerge.
My objections to the Labour amendment are mainly in its seeking an analogous position to the European Parliament, not in its desire for greater scrutiny, which to a great extent I share. This comparison with the European Parliament has been a long-standing ask from those in the Lords and the Commons, and was promised by the Government in response to a question that I asked Mr David Davis in 2017 during EU Select Committee evidence sessions. I was surprised that he agreed to grant the committee that, and I continue to be surprised that the Lords continues to ask the question as the Government move away from that offer.
The Motion seems to imply that Parliament should be given the same rights as the European Parliament. That in turn implies that the UK Parliament is similar in composition and powers to the EU, whereby it should have the same rights. First, the European Parliament was given the powers under Lisbon as the Commission, post Maastricht, had come under attack for being insufficiently democratic. The status quo ante had been that the Commission negotiated agreements and the European Council agreed them. Post Lisbon, the European Parliament forms a bicameral legislature with the Council of Ministers. This is not analogous to the role of the UK Parliament vis-à-vis the UK Government; I think that should be self-evident. As the EU institutions—
Baroness Smith of Newnham (LD)
I am a little confused. I thought that the point of the United Kingdom voting to leave the European Union was to take back control and that Parliament was sovereign and no Parliament could bind its successor. In such circumstances, is it not wholly appropriate for this Parliament to seek to hold the Government to account? Why is there anything peculiar about this?
Baroness Falkner of Margravine
I fear that the noble Baroness is a little enthusiastic in jumping in before I have concluded setting out my rationale for why I think that this is not analogous. I will not go into “taking back control” because we are a bicameral Parliament and the European Parliament is not, so it is a different entity entirely.
As the EU institutions practise in an area of trade policy that is not analogous, there is a distinction between straightforward trade agreements and mixed agreements, with differing procedures as the CETA debacle apropos Wallonia demonstrates. I remind noble Lords that CETA remains a provisional agreement; as yet it has not been ratified by all member states. So I would argue that how the Commission works through blockages is still a work in progress. My prediction is that the EU will find it increasingly difficult to pass the kind of comprehensive deals with either the US or other large countries that it seeks if such divergent and multiple checks on its autonomy prevail.
I turn to the noble Baroness’s question about the UK Parliament and the attempt to replicate the European Parliament’s powers here. One singular distinction is that we are bicameral and the European Parliament is a single Parliament, as I have just reminded her. Moreover, we have an elected Chamber, the Commons, which is similar to the European Parliament, and a further appointed Chamber, the Lords. Were we in the Lords to seek to put up objections to a trade deal that had been agreed by the Commons potentially where the detail may not have formed part of that Government’s manifesto, where would we be if the Commons cleared it but the Lords did not? Moreover, if one takes the EU analogy for mixed agreements and replicates it at national level, is one not saying that the devolved nations should also have a veto on the deal?
I am all for involving the devolved powers in the details of free trade agreements as in the end they have to implement them. The current mechanism for consultation should be improved. Would that be against changing our settlement for reserved matters? If that is the case, I will need to look again.
It seems to me that this ongoing quest for analogous powers to those of the European Parliament on the part of some sides of this House is misguided.
Baroness Hayter of Kentish Town
Will the noble Baroness accept that the amendment only asks for access to documents, not for powers over their content?
Baroness Falkner of Margravine
I will read the wording of the amendment, which
“calls on Her Majesty’s Government to ensure that, in a manner consistent with the European Commission’s treatment of the European Parliament, both Houses … are able to receive regular updates from Ministers”—
and so on. In my view, that goes too far, because it draws the analogy with the European Parliament. I also say that to the noble Baroness, Lady Hayter, because I have noticed sections of this House consistently making that analogy.
The noble Baroness may be interested to know that I would seek powers of scrutiny over future trade deals through a Select Committee on international trade—perhaps a Joint Committee of both Houses that would have several and various powers of scrutiny that the Government have said that they are perfectly willing to consider. I see benefits to Parliament, the public and the Government in that pathway, as Governments undoubtedly benefit from the early warning of problems that comes through Select Committees. But ultimately it is the Government’s prerogative to be the sole negotiator of trade agreements and, while the UK should improve its own constitutional arrangements, it should not seek to emulate processes designed for other institutions.
Lord Whitty (Lab)
My Lords, I thank the noble Earl, Lord Kinnoull, and his committee for producing this report. It is very timely and clear. I will be supporting my noble friend Lady Hayter’s amendment and I thank her for tabling it. I will say something towards the end of my remarks about the whole issue of accountability.
I also thank the noble Lord, Lord Kerr, even though he has largely pre-empted some of my more important points. Like him—and the committee, rather more delicately—I regret that there has been a departure from the spirit of the political declaration. There has been a bit of a departure by the EU, one has to say, but a very substantial departure by the British Government from a political declaration that was, after all, signed by this Prime Minister. That is serious enough but, as the noble Lord, Lord Kerr, has just said, even more serious is the apparent departure from what is already in a signed treaty in relation to Northern Ireland and the protocol in the withdrawal agreement.
My main remarks will be about trade, which is, after all, the most important dimension of our joint relationship, although it is not the only one. I had to look back; it was as long ago as December 2016 when the committee I was then chairing jointly produced for the then EU Committee a document entitled Brexit: The Options for Trade. I had another look at it over the weekend. We were very prescient and far-sighted in the options we looked for. We accepted that Britain would be outside the EU and that we would leave in formal terms the customs union and the single market. I remember saying several times in this House and elsewhere that, in that situation, frictionless trade is a relative term; you have to look at the different implications of the different arrangements.
We looked at a number of arrangements, ranging from membership of the EEA through to trading under WTO rules. It seems to me that all those outcomes might still conceivably be the case. We are no further ahead. In effect, in the latest Council decision, the 441-page treaty which the noble Earl, Lord Kinnoull, has clearly read—he might send me one of his four copies, even if it is in French—the EU clearly goes for the option of something very like an association agreement. In fact, in treaty terms, it will be under Article 217 relating to association agreements.
The British option, as far as one can interpret it, is much closer to the arrangements with Switzerland, as the noble Lord, Lord Kerr, has said. They are looking for a trade agreement but also a whole suite of other agreements. That was an option that we looked at but largely dismissed. It could still be a form of free trade agreement, similar to that agreed with Canada or Japan, or to what the Government used to talk about—Canada-plus-plus-plus. That has been relegated to just one “plus” in recent ministerial announcements, but all those options are still there, as is the bare-bones agreement of limited clauses and effect that was once referred to by David Davis; or it could be on WTO terms, as I say, which is now known as Australia. They are all still available, although the one that we identified at the time as the easiest and least disruptive course to take—namely, to join on EEA terms: the Norway option—although we did not actually advocate it, has been clearly rejected by the Government and, in effect, by the EU. So there are still a lot of potential outcomes between now and the end of December.
It is three and a half years after our report, after two general elections, two Prime Ministers, three Governments and four Secretaries of State. Until very recently, the only continuous presence was that of the noble Lord, Lord Callanan, on the Front Bench opposite—I am pleased to welcome the noble Lord, Lord True, in his stead. There have been many changes in the British political situation since we produced that trade report. However, there has been no serious progress regarding relations on this key issue between ourselves and our largest and closest trading partner.
Do the Government mean what they say about wanting a Swiss-type suite of separate agreements with separate Governments? That has caused many ructions between the EU and Switzerland, and it is a relatively small part of EU trade compared with the EU’s trade with the UK. I am not sure why we need that suite. In the British government documents and the other pronouncements there is, for example, a reference to a bilateral aviation agreement. I hope we have one, otherwise aviation range will fall on 1 January. There was a reference in the timetable for the trade talks—before the virus slowed them down a bit—to talking about a separate aviation safety agreement and a general aviation agreement. I have a Question set down for later in the week about the European Aviation Safety Agency. The situation there, as both the airlines and the aerospace manufacturing industry recognise, is that if we are not careful and do not continue to act very closely with EASA, the airlines will be faced with a situation where their aircraft, their components, and the qualifications of their personnel may be legal at one end of a short European hop but queried at the other end. If we want to diverge, there are consequences. If we do not want to diverge, why do we not say so and reach some sort of association agreement with EASA?
The same applies to many of the other EU agencies, which, during the course of several different withdrawal Bills, I raised in the House. Mrs May, when she was Prime Minister, recognised that there would need to be some separate arrangement on aviation, as she did on chemicals. We had a Question today from the noble Lord, Lord Fox, and the Government were not at all clear on what arrangements would be made for that vital industry. Environmentalists and the industry itself are deeply concerned about the capability of the HSE and air authorities to reproduce the arrangements in the European Chemicals Agency. Indeed, even if we manage to duplicate those arrangements, it is a double administrative cost and charge, and a potential delay for our chemicals-based sector and the industries that use chemicals.
If we are going to have separate agreements on separate areas that are covered by such things as the aviation or chemicals agencies, now we ought to be particularly concerned about the medicines agency, which was of course based here and has already left—and there are many others, for example on food safety. If we are to have a separate agreement on fisheries, the EU will insist that that is reached before we reach a general agreement. Indeed, because of the timing of this, the Government seem to be going along with the view that we can reach a fisheries agreement by June. I think that is unlikely. It is equally unlikely that we will reach a financial services agreement by July. The noble Lord, Lord Kerr, and my noble friend Lord Hain spelled out the ambiguities in meaning of the Northern Ireland protocol and whether we can reach mutual understanding on that in time for this to be all agreed, broadly speaking, by September, and ratified through the European Union and ourselves by December. It is about time for the Government to recognise that, leaving aside the current serious difficulties because of the coronavirus, the timetable they set themselves was never achievable and is certainly not achievable now.
Other issues, such as the level playing field—where we started from the position in Mrs May’s Chequers proposition that we were talking about a common rulebook but ended up with the Government making a virtue of maximum divergence—and state aid, also need to be resolved. There is certainly deep anxiety among our former partners in Europe that there will be heavy state intervention to support competitors against their own industries. Not that long ago, during the election, it was regarded as a very leftist position to look to subsidise British industry—people were worried about Jeremy Corbyn breaching the state aid rules in that regard—but now, with this big-state Toryism, the Government in Brussels and Governments throughout the continent are worried about this Government causing unfair competition. These issues are not easy to resolve and are unlikely to be resolved in the timetable currently announced—but they need to be resolved.
My last point is on accountability to Parliament, which is the main point of my noble friend’s amendment. I understand what the noble Baroness, Lady Noakes, said about the political situation having changed but, like the noble Baroness, Lady Falkner, we are not asking for the exact equivalent of the European Parliament. We are simply asking that both Houses of Parliament are kept informed on the progress of these negotiations and can comment on them.
The strange thing is that, in discussing the potential trade treaty with the United States, the Government have, in effect, given that guarantee, at least to the House of Commons. When we talk about a prospective treaty with the United States, they are prepared to be accountable to Parliament; when we talk about a trade agreement with our largest and closest neighbour, they are not. That needs to be addressed; Parliament needs to assert itself in that process. I support my noble friend’s amendment.
Baroness Falkner of Margravine
Does the noble Lord agree that there are many routes for Parliament to carry out that scrutiny? One route could be a Joint Committee of both Houses or a dedicated Select Committee—possibly even an extension of the European Union Select Committee. It does not have to be a replication of the European Parliament’s powers but can be something where scrutiny is undertaken adequately.
Lord Whitty
I thank the noble Baroness. I agree. We need the principle of scrutiny; the form of it we can debate. We can debate the correct structure within our two Houses but, without the principle being conceded by the Government, we are in an anomalous situation in relation to Europe and to what has been promised on this side of the pond in potential trade negotiations with the United States.
Brexit: European Investment Bank (European Union Committee Report)
Baroness Falkner of Margravine Excerpts(5 years, 5 months ago)
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Baroness Falkner of Margravine
That this House takes note of the Report from the European Union Committee Brexit: the European Investment Bank (25th Report, HL Paper 269).
Baroness Falkner of Margravine (LD)
My Lords, I am delighted to introduce this EU Committee report on Brexit and the European Investment Bank. In doing so, let me start by thanking all members of the sub-committee who participated in the inquiry, some of whom cannot be here today. As I have stood down as chairman of the sub-committee after four years, let me say a word or two about what a privilege it has been to lead this committee. Over four years, the sub-committee has had 28 Members of this House serve on it and assist it with the production of some five reports and other associated papers. Most related to issues arising for financial services due to Brexit. This has involved a considerable workload, and members have engaged with it with the wisdom and diligence that has made the EU committee and its sub-committees so well respected in the UK and beyond. I am grateful to each and every single member of them.
Let me turn to the sub-committee’s secretariat. They are among the most knowledgeable in the House and have a thorough command of the complexities of both the EU and UK financial services dossiers. I am sure committee members will agree that we have been excellently served by Matthew Manning, the clerk, Erik Tate, our policy analyst, and Hadia Garwell, our committee assistant.
Given the importance of the European Investment Bank’s lending to the UK and the lack of any detail on the UK’s future relationship with the EIB in the Government’s Chequers White Paper, the EU Financial Affairs Sub-Committee undertook an inquiry on this topic from September to November last year. We heard evidence from a range of experts, recipients of EIB funds and existing lending institutions, including the EIB itself. We are grateful to all those who contributed. Although the focus was primarily on the European Investment Bank, we also considered the European Investment Fund, which channels funds to venture capital and private equity funds and in which the EIB is the majority shareholder.
Prior to the referendum, the UK was an outsized recipient of EIB funding, supporting a range of important projects, from £525 million to support the construction of the Beatrice windfarm off the Caithness coast, £825 million for ports and harbours across the UK, to £1.5 billion for the affordable housing finance programme —and add to this the £1 billion loan for the construction of Crossrail.
Since the UK’s accession in 1973, it has borrowed more than €118 billion from the EIB. Seventy per cent of this has been in the past 20 years, 45% since the financial crisis. One significant advantage to borrowing from the EIB is that its loans are cheaper and longer term than commercial alternatives. While it may be that some sectors will find the EIB’s financing easy to replace, we were told that some projects would not be viable without EIB funding—for example, some of the large-scale infrastructure investments made by UK universities—and although borrowers may be able to secure alternative funds, this will very likely be at a higher cost.
The EIB can also play a crowding-in role. Its expertise and high-quality due diligence serve as a stamp of approval for projects, encouraging private-sector investment. This is especially important when it comes to the higher-risk, innovative infrastructure projects with the associated new technology risks—and these are exactly the projects that will prove vital to addressing some of the UK’s most pressing infrastructure needs in future.
Given these benefits to the EIB’s lending, it is slightly disconcerting that there was a precipitous decline in its lending immediately after the referendum. In 2015, the EIB lent €7.8 billion to 47 projects. In 2016 it lent €7 billion to 54 projects. But in 2017 this dropped to €1.8 billion to 12 projects, and in 2018 it was €932 million to just 10 projects. A nearly 90% fall in such a short span of time is hard to attribute to anything other than the effect of the referendum—and many of our witnesses agreed.
The withdrawal agreement states that the UK will no longer be a member of the EIB and so will lose access to its lending facilities. One might therefore expect some clarity from the Government on what will replace the EIB, and whether that will take the form of a new relationship or alternative sources of funding. Our witnesses presented us with a range of options, from establishing a UK EIB subsidiary to creating a new multilateral development bank to co-operate with the EIB.
In the light of reports that the EIB’s president, Werner Hoyer, would be “extremely sad” if the UK’s continued participation in the EIB was no longer an option, we were disappointed at the seeming lack of ambition from the Government in thinking through options for such a future relationship. The Government said nothing about the EIB in their Chequers plan, and the outline political declaration said only that,
“the Parties note the United Kingdom’s intention to explore options for a future relationship with the European Investment Bank (EIB) Group”.
I reiterate the committee’s conclusion that, at least as an interim measure and certainly as a first step, reaching a third-country agreement with the EIB should be a priority.
The Government have an array of existing tools to support infrastructure projects, such as the UK Guarantees Scheme operated by the Infrastructure and Projects Authority, although witnesses told us that it is underutilised and insufficient. We also heard evidence of a range of examples of national promotional banks in other developed economies, from the Nordic Investment Bank to the Development Bank of Japan. Indeed, the UK had its own example of such an institution in the Green Investment Bank, set up in 2012 and privatised in 2017. Although focused on green infrastructure projects, this precedent could serve as a model and shows that such a lender can be created relatively quickly.
The Infrastructure Finance Review was announced in the 2018 Autumn Budget as our inquiry was ongoing. A consultation was launched in March this year, closing in June. In our report we called on the Government to consider the establishment of a UK infrastructure bank, and we welcome the inclusion of a question on this in the consultation. We hope that the Government take the committee’s view on board, alongside responses to the consultation.
There was more positive evidence on the European Investment Fund and the Government’s support of the SME sector. The Chancellor’s commitment in the 2018 Autumn Budget to increase the funding of the British Business Bank in the event of no deal was welcome. We also heard that the British Business Bank was increasingly acting as a “cornerstone” investor, involving itself earlier in investors’ activities, thereby replicating one of the advantages of the EIF. However, the BBB recognised that this fact might need to be broadcast more widely, as some witnesses did not seem to be aware of this change in their approach to financing.
Another issue that arose was the return of the UK’s €3.5 billion of paid-in capital. This was the issue that captured the most media attention and remains unanswered. Although the withdrawal agreement sets out a schedule of payments to return the money, we asked why the UK would not receive any share of the retained earnings. Member states are liable for uncalled capital, and the EIB’s retained earnings can be used by the EIB to avoid requesting such additional funding. There is a case to answer as to why the withdrawal agreement did not factor this in in its calculation of the financial settlement. Given the UK’s 16.1% stake in the EIB, a corresponding share of the retained earnings—€47.3 billion at the end of 2017—would amount to approximately €7.6 billion, which is more than twice the paid-in capital and almost a fifth of the £35 billion to £39 billion allocated to the financial settlement. Noble Lords will therefore appreciate the importance of establishing clarity on this matter.
We were unimpressed by the lack of any substantive response by the Government on this question. If there are good reasons for the UK not receiving a share of those earnings, whether legal or political, we would expect them to be set out explicitly so that their adequacy can be judged. The Minister failed to do so in evidence given to the committee and in the response to the report. I hope that tonight we will hear a response from this Minister as to the reasons, but I will go a little further and ask whether we can have an assurance that the return of the UK’s paid-in capital will be used for spending on projects similar to the EIB’s investments—in other words, to make up the shortfall, rather than being diverted into other areas of public spending.
The Government’s response to our report amounts to not much more than an acknowledgement of its publication. It fails to engage in any meaningful sense with the conclusions and recommendations contained in it. This falls well short of the expectations we have of how the Government should address recommendations made by a Select Committee of this House. Post Brexit, the UK will no longer be able to borrow from the EIB. This is a substantial loss. Given our green energy commitments, our housing priorities and our universities’ needs, venture and patient capital will be needed more than ever. Yet we find ourselves, with just over 100 days until the latest Brexit deadline, with no indication of how the UK will respond to the disappearance of a major lender to sectors that are central to meeting the UK’s present and future infrastructure needs. Surely we need to do better than that. I beg to move.
Baroness Falkner of Margravine
My Lords, it remains for me to thank all Members who have spoken tonight. There were some excellent speeches that will merit rereading in Hansard tomorrow.
The Minister shone a little light on the negotiations with regard to our retained earnings—a very little light—but perhaps he shone slightly more light on the success of having got our money back a little earlier than originally envisaged when the negotiations started. However, given the late hour, and given that he has had an extremely long working day on his birthday, I think the whole House will wish for him now to be rewarded with a little light refreshment. I thank all noble Lords.