The Economy

Lord Bruce of Bennachie Excerpts

Thursday 28th April 2016 Lords Chamber

[Lord Newby (LD)]

My Lords, I thank the Government for initiating this debate. I also join the Minister in his tribute to Lord Peston. Anybody who, like me, has sat through many economic debates in your Lordships’ House will miss the energy and wit that he brought to every contribution he made. On a personal level, I will miss the friendship of someone who slightly took me under his wing when I was a new Member to your Lordships’ House. With him, I was a founder member of your Lordships’ Economic Affairs Committee, of which he was such a distinguished chairman.

The biggest foreseeable risk to the prosperity of the UK lies in the outcome of the EU referendum. Therefore, I intend to devote my remarks entirely to that today. In doing so, I regret the complete absence from the speakers list of the sages of the Government Privy Council Bench and, indeed, the UKIP Members of your Lordships’ House.

The heart of the economic argument about EU membership or not lies in our long-term trading prospects. The trading picture of the UK has changed significantly since we joined the EU in 1975. Then, trading was largely in goods; now, we are the leading services exporter as a proportion of output in the G7 and some 40% of our exports globally and to the EU are in services. The EU is now by far our biggest export destination as a whole, as the Minister said, with some 44% of British exports going to Europe. It is acknowledged that the increase we have seen with trade in the EU is directly linked to our membership of it. The Centre for European Reform says that it has raised trade by 55%, while the Government argue that it has done so by between 68% and 85%. Whatever the exact figure, it is hard to deny that it is a substantial amount.

What are the opportunities and threats to our trade from staying in or coming out? If we stay in, we know that the completion of the single market in services, which is moving forward with greater energy, will significantly benefit the UK simply because we are the leading provider of services. This is an area where there is the greatest potential for growth worldwide and an area where the UK is in a very strong position to benefit. We also know that the EU is well down the track of negotiating—and completing negotiation on—trade deals with some of the largest economies in the world, including the US, Japan and India. When those trade deals are completed, as they will be, we will get benefits from them by virtue of our membership of the EU.

We can see very tangibly what some of the benefits will be in terms of trade if we stay in. If we come out, however, we do not even know what the preferred trading relationship of those who advocate coming out is. Nigel Farage suggested yesterday that he preferred a relationship that was, as he put it, like that of either Switzerland or Norway. There is quite a big difference between Switzerland and Norway; it would be useful if he could narrow that down a bit. Boris Johnson said that we should have a deal like Canada’s and then, under criticism, said that we should have a deal like the WTO’s. Michael Gove surprised everybody by saying that we should have a deal that mirrored that of Iceland or Albania. I strongly recommend that noble Lords who have not done so read the article in the Times of 25 April by the Albanian Prime Minister. After describing Michael Gove’s suggestion as “weird”, he eloquently explained why seeking membership of the EU is in Albania’s interests and why, even before being a member, Albania’s aspirations to join the EU have “made the impossible possible”. Mr Gove threatens to turn that aspiration on its head for the UK and make what is possible for the UK in the EU impossible outside it.

[Lord Bruce of Bennachie (LD)]

Does my noble friend not also think that Michael Gove let the cat out of the bag when he said that what he really hoped was that once Britain left the EU, the EU would disintegrate, and that is really his objective?

[Lord Newby]

I think it may be his objective and I find it the most irresponsible statement I have ever heard, given the history of Europe through which we have lived and which we know from the history books.

Whatever the relationship with the EU is likely to be, it will not be on the same terms as now. Even in the closest feasible relationship, such as that with Norway, we will have to accept the rules and costs of membership with no say over them. This will have a negative effect on trade, particularly in services. In financial services, failure to retain the right of companies to passport their services from the UK to the rest of the EU, if we form an agreement on those lines, would undoubtedly lead to significant job losses in the City— some estimate as many as 100,000—to the benefit of Frankfurt, Paris and Dublin, which certainly have the capacity to pick up the baton. If we were unable to keep the passporting rights, rules set by the EU would undoubtedly over time, as sure as night follows day, disadvantage the City. So, whatever the post-Brexit relationship, our position re trade with the EU will be less favourable than it is now.

What do the Brexiters say? They say we do not need to worry about trade with the EU because outside the EU our trade with the rest of the world would blossom, particularly with the fastest growing countries in Asia and Latin America. This argument has been used in recent days by as wide a group as not only Michael Gove but the noble Lord, Lord Owen, and Sir Ian Botham. However, for this to be true it would have to be the case that UK companies are currently hobbled from exporting outside the EU, that we would be able to get better trade deals by negotiating on our own and that there is a reserve army of UK companies waiting in the wings ready to take up those new opportunities.

All these assertions are false. Are British companies currently constrained from exporting outside the EU because of EU rules? There is no evidence for this. True, we export less than Germany by a factor of over two to China, India, the US and Brazil. However, the fact that Germany exports so much shows that EU membership in itself is not a barrier to successfully exporting globally. Indeed, over the past decade, our exports to some of these countries has greatly increased—to China by over 70% and India by almost 30%. The reason for our relatively poor historic performance and relatively strong recent performance has had nothing to do with the EU—it is because there has been a concerted push by British exporters, backed by the Government, to increase exports to those countries which was largely lacking before. It is worth emphasising that our exports to the BRIC countries, even if you include South Africa in that definition, is well under 10% of the total, compared to 17% to the US, let alone the 44% to the EU.

The second myth is that we would get better trade deals on our own if we were not held back by the EU. This myth has been romantically advanced by Ian Botham in respect of the English-speaking, cricket-playing members of the Commonwealth.