Withdrawal Agreement: Economic Analyses

Debate between Baroness Morgan of Cotes and Ian Murray

Thursday 13th December 2018 Westminster Hall

[Nicky Morgan]

I thank the hon. Lady for her questions, and it is good to have this debate—I am sure we would have had it on the Floor of the main Chamber if it had continued, but now we have time to reflect on all of this.

The hon. Lady is right to say that the first thing the Chancellor admitted—I think both publicly, when the analysis was first published, and before the Committee as well—was that none of the scenarios shows that there will not be a negative impact on the UK economy. A 4% hit is substantial, if we think about that figure in the context of the financial crisis, and we as MPs all know that many of our constituents still feel the effects of that financial crisis 10 years on. Wages are now growing, but it has taken some time for them to do so.

Another of the hon. Lady’s questions was in relation to no deal. I know the Minister will not answer now, but he will be more than capable of answering for himself at some point in the future. However, I have been a Treasury Minister myself, and to be fair to the Government, they have dropped the “No deal is better than a bad deal” language. Parliament has already made it very clear that we are not going to sign off on any kind of no-deal arrangement, although we all have to debate among ourselves how we will head that proposal off at the right time. It is very clear that the Government do not want there to be a no-deal scenario, and I am glad that the analysis has shown why a no-deal scenario would be so very damaging and why it is of such concern to businesses, importers, exporters and those employing our constituents.

The hon. Lady also asked about the backstop modelling. Members will see in the report and in the transcripts of our sittings that we asked all our witnesses and the economists who gave evidence whether it was possible to model a backstop. With any modelling, it is all about the underlying assumptions. Some assumptions would have to be made about the way the backstop would operate and how long it would last. The Government told our Committee that, because they do not want to be in the backstop and because the backstop is not the preferred Government policy, it did not have to be modelled.

I think we all hope that that is the case and that the backstop is an insurance policy not to be called upon. Undoubtedly, however, on the basis of how long it takes to negotiate free trade agreements, there is a possibility that the backstop will be needed. That would then have an impact on those relying on importing to and exporting from this country. There is time now, and it might well be that this is something the Government Economic Service might want to consider, although its staff also deserve a Christmas. They might want to consider how they might give some more evidence to the House on this issue before we get to the meaningful vote.

[Ian Murray (Edinburgh South) (Lab)]

I congratulate the right hon. Lady and her Committee for producing this report, which could be summed up in one sentence: Brexit makes the country and every one of our constituents poorer. We see that when we get to the conclusions.

However, my question is about financial services. I have tens of thousands of financial services jobs in my constituency, and under all the models examined in the Treasury Committee’s report, the financial services industry shrinks, by anything between 9% and slightly less than 1%. That would have a disproportionate impact on Edinburgh, because of the way its financial services sector is set up. Was any modelling done on how many jobs would be lost and on what the Government need to do between now and 29 March next year to put in place a system, mechanism or part of a deal that would mean that the financial services industry would not shrink but, indeed, grow?

[Nicky Morgan]

I thank the hon. Gentleman very much for his question. I am pleased that he has mentioned financial services, because the view among those in the financial services industry is that they have not really had quite as much attention devoted to them as they should have, given that they are such a significant taxpayer and employer. I am also glad he mentioned Edinburgh, because we tend to think sometimes just about the City of London. He is of course absolutely right to say that there are many financial services jobs in his constituency and in other constituencies around the country.

Before I get on to his point that all scenarios will make us poorer, one interesting thing about the economic modelling for the Treasury is that it is done purely on the trading impact. It is fair to say—it is both a negative and a positive—that there is no domestic policy assumption made at all. Of course, it is possible for any future Government to consider how they might respond to the scenarios as they unfold.

There was not specific modelling of jobs. There have been estimates, and again we asked the chief executive of the Financial Conduct Authority for some, as we have asked other financial services witnesses. The initial estimates of jobs moving overseas have not come to pass, but we are still looking at between 5,000 and 10,000 people being impacted.

The financial services sector now talks about “day one” and “day two” impacts. As for day one, we know that a lot of financial services firms are already putting in place contingency arrangements and that they are trying to keep job moves to a minimum. Depending on the deal that is eventually arrived at—this relates to the hon. Gentleman’s question about what deal could be put in place to help this process—the impacts of “day two” and beyond on jobs being lost or moved could be very significant for the financial services sector. Obviously, we could be talking about thousands of jobs. These are often well-paying jobs, and they are not something that any of us here today want to see disappearing from our constituencies.

Let me answer the hon. Gentleman’s question, though, which is actually about the deal on the table at the moment. The political declaration refers to a system of equivalence, but a lot of work needs to be done to work out the equivalence regime. Andrew Bailey, the chief executive of the Financial Conduct Authority, went through with our Committee how he thought the equivalence regime needs to be enhanced, and I think he is right on that issue.

I do not think it is any great secret for Members of this House that I am in favour of a Norway-plus type of option, whereby we would retain access to the single market. I know that there are other objections to that proposal, but for financial services it would keep the passporting regime in place, which would be of significant benefit to financial services firms, and therefore in terms of the numbers of people they can employ going forward.